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Fed Hikes Interest Rates, More to Come in 2017

The Federal Reserve raised interest rates a quarter of a point on Wednesday for only the second time in a decade, and with an improved economic outlook, rates are now predicted to rise three times in 2017.

Rates will rise a quarter percent. The Federal Open Market Committee decision brought the rate to a target range of 0.5 to 0.75 percent.

Federal Reserve Chair Janet Yellen announced the change in a Wednesday press conference. She said that in raising the rates, “my colleagues and I are recognizing the considerable progress the economy has made toward our dual objectives of maximum employment and price stability.”

“We expect the economy will continue to perform well, with the job market strengthening further and inflation rising to two percent over the next couple of years,” she continued.

While Yellen noted an increase in economic growth in the latter half of 2016, she remarked that business investment has remained soft.

The November National Federation of Independent Business (NFIB) Index of Small Business Optimism released this week indicated that small business optimism is skyrocketing in direct correlation with the November 8 election won by now President-elect Donald Trump. Small business plans to hire jumped 14 points from before to after the election.

2016 and 2017 economic forecasts from Fed board members and regional bank presidents have improved since September according to the Washington Post. Growth is now predicted at 1.9 percent in 2016 and 2.1 in 2017. Predictions also extended to the number of times, three, and the rate, 1.4, to which the Fed will increase rates by the end of 2017. The previous projection was for just two increases.

Committee participants provided a median prediction that the fed funds rate would reach 2.1 percent by the end of 2018 and 2.9 percent by the end of 2019.

Yellen provided that “the economic outlook is highly uncertain.”

Now President-elect Donald Trump campaigned heavily on the issues of tax reform and trade policy. Trump’s tax plan is expected to lower taxes for most Americans, as a Fortune report on the plan diagramed out.

“As many observers have noted, changes in fiscal policy or other economic policies could potentially affect the economic outlook,” Yellen said Wednesday. She qualified the statement by noting that the Fed considers many other factors in making policy decisions relative to their goal of “maximum employment and two percent inflation.”

The 12-month personal consumption expenditures price index was nearly 1.5 percent in October, up one point from the prior year. Yellen indicated an expectation for a further strengthening job market that the Fed expects to bring inflation up to their two percent goal.

Follow Michelle Moons on Twitter @MichelleDiana 

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