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US Central Bank Appears Headed Toward Boost in Benchmark Interest Rate

  • Ken Bredemeier

FILE - Federal Reserve Chair Janet Yellen at the Economics Club of Washington, Dec. 2, 2015. Yellen indicated that the U.S. economy is on track for an interest rate hike this month, but the Fed will need to review incoming data before making a final decision.

FILE - Federal Reserve Chair Janet Yellen at the Economics Club of Washington, Dec. 2, 2015. Yellen indicated that the U.S. economy is on track for an interest rate hike this month, but the Fed will need to review incoming data before making a final decision.

Policy makers at the U.S. central bank, the Federal Reserve, started a two-day meeting Tuesday in Washington, with economic analysts predicting they will increase the benchmark interest rate for the first time in nearly a decade.

The analysts are expecting a quarter of a percentage point boost from the zero to a quarter of a percent figure that has been in place for seven years.

A jump in the rate the Fed sets for the country's most credit worthy institutions when they borrow and lend overnight funds to each other could lead to corresponding increases in the interest rates on loans for U.S. businesses and consumers, forcing them to pay more to borrow money.

The Fed has kept the interest rate as low as possible to boost lending and economic activity in the United States as it recovered from the depths of the steep recession in 2008 and 2009 that was the worst in the country since the Great Depression of the 1930's.

But now the U.S. economy, the world's largest, is adding about 200,000 jobs a month, its jobless rate is at a historically typical five percent, and the economy is expanding at a modest, if not robust pace.

Fed chair Janet Yellen said earlier this month that a rate boost now "will be a testament ... to how far our economy has come in recovering from the effects of the financial crisis and the Great Recession."

The rate boost could be the first of several if the U.S. economy continues to improve. Yellen and other policy makers say a "gradual" series of rate hikes could be imposed in the coming months to keep the economy from expanding too rapidly and hold inflation in check.

Analysts say that could mean quarter-point increases every three months or so over the next three years that could lead to a 3.375 percent benchmark rate by the end of 2018.

The U.S. economic advance is in marked contrast to China, where the world's second largest economy is slowing, and in Europe, where the European Central Bank is continuing its large-scale purchase of bonds to boost its economic fortunes and cut unemployment. The Federal Reserve also used such a stimulative measure, but ended it more than a year ago.

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