Fed Raises Rates Amid Strong Outlook

Following a two-day policy meeting, the Board of Governors of the Federal Reserve System raised its prime rate Wednesday by a quarter point, from 1.25% to 1.50%. The increase - which affects interest rates on several instruments, such as credit cards and mortgages - marks the third increase this year and just the fifth since 2008. The Fed lowered interest rates to zero after the 2008 financial crisis in an effort to encourage borrowing and spending, which would accordingly spur the economy. As the economy has gradually recovered, the Fed has raised rates in steps, though rates are still relatively low historically. The intent when raising rates is to control inflation by balancing demand/supply and attracting foreign investment.

At the meeting, the Fed also revised its economic outlook, increasing 2018 GDP growth expectations from 2.1% from September to 2.5%, increasing inflation from 1.6% to 1.7%, and cutting unemployment from 4.1% to 3.9%. 

The Fed anticipates raising rates three times in 2018.