The US Federal Reserve raised the benchmark interest rate for the third time in a decade on Wednesday, pushing it up by a further 0.25 percent.
The rate rise had been expected at the March meeting, after a strong February jobs report boosted confidence in the US economy. The central bank voted 9 – 1 to raise its key rate target to a range of 0.75 percent to 1 percent, and rates are expected to be raised another three times this year.
However, formed Fed governor Robert Heller admitted that the US economy is still behind where it should be, telling CNBC that interest rates should be at around 3 percent now that the Federal Reserve has achieved all of its targets.
Heller said: “We have very low unemployment rate of 4.7 percent, we have inflation roughly at 2 percent, so rates should be normal now. And normal…would be at 3 percent. Instead, we are below 1 percent.”
However, Fed Chair Janet Yellen said the committee judged that the “modest increase” in the rate was appropriate “in light of the economy’s solid progress.”
“Even after this increase, monetary policy remains accommodative, thus supporting some further strengthening in the job market, and a sustained return to 2 percent inflation,” she added.
Tom Stevenson, investment director for personal investing at Fidelity International, commented:
“The key question is how investors will react over the longer term to the latest ‘dot plots’, the chart which indicates the rate predictions of the rate-setters on the open markets committee. The latest charts suggest we could see a modest acceleration in the tightening of rates, but not enough to unsettle investors.”