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The Federal Reserve raised its benchmark interest rate by a quarter point today. That part didn't surprise anyone. But the Fed also laid out a plan to reduce the overall size of its balance sheet. It swelled in the years after the financial crisis and has stayed big ever since. NPR's Yuki Noguchi reports.
YUKI NOGUCHI, BYLINE: Today marked the fourth time the Fed has raised interest rates since December of 2015 when it deemed the economy finally healthy enough to withstand an interest rate higher than near-zero. The Fed has kept its key interest rate at unprecedented low levels for years in an effort to help the economy recover from the Great Recession.
Today's move sets the federal funds rate between 1 and 1-and-a-quarter percent, still extremely low by historical standards. Now the economy is far better off. The jobless rate stands at 4.3 percent and is expected to fall further. Fed Chair Janet Yellen stated her view in a press conference that the economy appears strong enough to withstand additional rate hikes, barring new indications of economic weakness.
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JANET YELLEN: We anticipate further increases this year and next year for the federal funds rate.
NOGUCHI: Fed officials raised interest rates today despite the fact that the latest readings on inflation show that it is not picking up steam. Inflation did rise a bit earlier this year and managed to hit the Fed's goal of 2 percent a year but has since fallen back. Yellen said she and other Fed officials are very much aware of this and remain confident inflation is just taking a breather.
Another big issue on the Fed's agenda is doing something to unwind other measures it put in place during and after the financial crisis when bank lending dried up. To support the economy, the Fed had taken the extraordinary step of buying up trillions of dollars' worth of bonds, government agency debt, a move that helped lower the cost of borrowing throughout the economy. The amount of securities the Fed held on its balance sheet ballooned from less than a trillion dollars before the crisis to roughly $4-and-a-half trillion. Starting sometime this year, Yellen says the Fed will start gradually reducing those holdings by as much as $600 billion a year.
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YELLEN: The balance sheet is not intended to be an active tool for monetary policy in normal times.
NOGUCHI: Greg McBride, an analyst with consumer financial site bankrate.com, says taken together, the Fed's moves have caused home equity and car loan rates to increase about 1 percent over the last two years.
GREG MCBRIDE: The combination of rising debt burdens and rising interest rates is starting to strain some households. And we're seeing delinquencies pick up from recent lows.
NOGUCHI: But overall, McBride says he shares the Fed's relatively upbeat take on the economy. Yuki Noguchi, NPR News, Washington. Transcript provided by NPR, Copyright NPR.
