The move, which has repercussions across the global financial system, also imprinted Janet Yellen’s personal stamp on US monetary policy after nearly two years as Fed chair spent plotting to reverse course from the easy-money stance bequeathed by predecessor Ben Bernanke.
The Fed raised its benchmark federal funds rate, locked near zero since the financial crisis, by a quarter point to 0.25-0.50 percent, saying the world’s biggest economy is growing solidly and should accelerate next year to a respectable 2.4 percent pace.
“This action marks the end of an extraordinary seven-year period during which the federal funds rate was held near zero to support the recovery of the economy from the worst financial crisis and recession since the Great Depression,” Yellen said.
“It also recognizes the considerable progress that has been made toward restoring jobs, raising incomes, and easing the economic hardship of millions of Americans.”
The move was widely expected and marked the end of an era in which the Fed pumped trillions of cheap dollars into the devastated US economy to fuel what turned out to be an unexpectedly long rebound.
It kicks off a likely series of rate increases which the Federal Open Market Committee, the Fed’s policy board, promised would be “gradual” and follow the pace of the economy.
FOMC projections showed they expect the rate will rise to about 1.4 percent by the end of 2016, suggesting four more increases over the coming 12 months.
“The important question is how far, how fast,” said economist Edwin Truman at the Peterson Institute for International Economics.