Federal Reserve raises key interest rate, first time since 2006

Economic activity in the U.S. has been expanding at a moderate pace, the report says. Household spending and business fixed investment have been increasing at solid rates in recent months, while a range of recent labor market indicators, including ongoing job gains and declining unemployment, shows further improvement. 

Inflation has continued to run below the 2% longer-run objective. Some survey-based measures of longer-term inflation expectations have edged down.

Committee currently expects that economic conditions will develop in a way to become a base for a gradual raise of the federal funds rate.

“The move is small, but it amounts to a vote of confidence that the American economy -- dogged by volatile oil prices, a slowdown in China and weak global growth -- will stand resilient,” The Washington Post reports.

"I feel confident about the fundamentals," Fed Chair Janet Yellen told reporters after the vote. "We have been concerned  about the risks from the global economy. Those risks persist, but the U.S. economy has shown considerable strength."

“In theory, higher rates have three main effects, writes The Economist. 

“First, they slow spending as credit becomes more expensive and the return to saving increases. Second, they strengthen the dollar by attracting foreign capital. Third, they reduce asset prices by increasing the discount rate applied to future profits. The reality, however, is not always in line with the theory. On average, in the years following the start of the past five rate-rising cycles, the dollar held steady and share prices continued to rise,” the Economist reports

“The most uncertain variable is inflation,” according to the report. “Yet in 2016, the most likely direction for inflation is up.”

Read alsoCrude prices dip after recent gains as Fed decision looms – ReutersAs UNIAN reported earlier, a significant number of Federal Reserve officials supported the interest rate increase in December during the last meeting of the regulator. After the summer and early fall the Fed was troubled with the U.S. market volatility and sale of Chinese assets. 

The Fed kept the rate at 0-0,25% from December 2008. This last increase took place on June 29, 2006. During 2007-2008 the Fed has been gradually lowering the rate until it reached the minimum mark in December, 2008.