Why Were Interest Rates Raised?
The Federal Reserve has made the decision to increase interest rates by 0.25% at the end of 2016, with more dramatic increases to follow in 2017, news of which was released in December 2016. The decision was made for the interest rate increase of a quarter point to begin at the end of 2016, with two more 0.25% increases to follow over the course of the following year. This increase indicates that the labor market is tightening and thus, the United States economy is improving. Over the past decade, interest rates have only increased 0.25%, with that increase happening at the same time last year.
This change was made in response to the impressive amount of jobs that have been created and maintained over the past year and a half, with unemployment rates now below 5%, the lowest it has been since before the recession. Notably, in 2016, 180,000 jobs were added a month, which has led the Federal Reserve to allow interest rates to increase due to borrowers’ ability to pay more for loans and return to the ideal of 2% inflation. The interest rate hikes in 2017 could follow quickly after President-elect Trump’s taking to office, due to his pledge to provide growth oriented tax cuts and increased spending on infrastructure.