The Federal Reserve has raised its benchmark interest rate for the second time in three months and signaled that any further hikes this year will be gradual. The move Wednesday reflects a consistently solid US economy and will likely mean higher rates on some consumer and business loans. The Fed's key short-term rate is rising by a quarter-point to a still-low range of 0.75% to 1%, reports the AP. The Fed is sending the message that nearly eight years after the Great Recession, the economy is healthy enough to withstand steadily tighter credit. Investors had seemed unfazed in recent weeks by the possibility that the Fed will raise rates several times in the coming months. Instead, Wall Street has been sustaining a stock market rally that began with President Trump's election, buoyed by the prospect that tax cuts, an easing of regulations, and higher infrastructure spending will accelerate growth.
A robust February jobs report—235,000 added jobs, solid pay gains, and a dip in the unemployment rate to 4.7%—added to the perception that the economy appears strong. That the Fed is no longer unsettling investors with the signal of a forthcoming rate increase marks quite a change from the anxiety that prevailed after 2008, when the central bank cut its key rate to a record low and kept it there for seven years. During those years, any slight shift in sentiment about when the Fed might begin raising rates—a step that would lead eventually to higher loan rates for consumers and businesses—was enough to move global markets. But now, the economy is widely considered sturdy enough to handle modestly higher loan rates. Inflation, which had stayed undesirably low for years, is edging near the 2% annual rate that the Fed views as optimal.