Local NPR for the Cape, Coast & Islands 90.1 91.1 94.3
Play Live Radio
Next Up:
0:00
0:00
0:00 0:00
Available On Air Stations

Fed Raises Interest Rates, Signals 2 More Hikes This Year

Federal Reserve Chairman Jerome Powell speaks before the Economic Club of Chicago on April 6. The central bank raised a key short-term rate by a quarter-point on Wednesday, the second increase this year.
Charles Rex Arbogast
/
AP
Federal Reserve Chairman Jerome Powell speaks before the Economic Club of Chicago on April 6. The central bank raised a key short-term rate by a quarter-point on Wednesday, the second increase this year.

Updated at 2:21 p.m. ET

The Federal Reserve increased a key interest rate again Wednesday, which will trigger higher rates on credit cards, home equity lines and other kinds of borrowing.

Wednesday's action, which was widely expected, was the second Fed rate hike this year — and the seventh since it began boosting them in 2015. The latest increase puts the federal funds rate in a range between 1.75 and 2 percent. The Fed previously nudged rates up in March.

The Fed also signaled that it will raise rates more this year than previously expected — four times rather than three.

With the unemployment rate at 3.8 percent — a level reached only twice before in the past half-century — Fed Chairman Jerome Powell and his colleagues have decided additional rate hikes will very likely be necessary later this year.

In their statement, Fed policymakers noted that the labor market "has continued to strengthen and that economic activity has been rising at a solid rate."

The Fed's latest projections show unemployment falling to 3.6 percent in 2018.

Fed officials and many economists worry that the low jobless rate could force employers to hike wages faster, as companies compete for workers. That could spark higher inflation. At this point, there's been little evidence that wage or price inflation is accelerating. The Fed's new forecast showed inflation inching up only slightly over the next 2 1/2 years.

The Fed has long aimed for 2 percent inflation, a level policymakers think is key to a healthy economy.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said before the Fed made its announcement that policymakers are "scared of future inflation risk." And their rate increases are addressing the "perceived threat of inflation," not an immediate inflation problem, he said.

Interest rate hikes will hit consumers in their wallets. Borrowers are likely to see higher bills next month on credit cards and mortgages, especially those with adjustable rates. Interest rates on new fixed-rate mortgages could also climb. The average 30-year fixed mortgage rate recently hit a seven-year high, before retreating a bit to 4.54 percent.

Copyright 2021 NPR. To see more, visit https://www.npr.org.

John Ydstie has covered the economy, Wall Street, and the Federal Reserve at NPR for nearly three decades. Over the years, NPR has also employed Ydstie's reporting skills to cover major stories like the aftermath of Sept. 11, Hurricane Katrina, the Jack Abramoff lobbying scandal, and the implementation of the Affordable Care Act. He was a lead reporter in NPR's coverage of the global financial crisis and the Great Recession, as well as the network's coverage of President Trump's economic policies. Ydstie has also been a guest host on the NPR news programs Morning Edition, All Things Considered, and Weekend Edition. Ydstie stepped back from full-time reporting in late 2018, but plans to continue to contribute to NPR through part-time assignments and work on special projects.