The US Federal Reserve raised its key interest rate by 0.25%. The regulator also increased the forecast for the number of rate increases in 2017.
The FOMC unanimously voted for an interest rate hike to 0.5-0.75% per annum. This is the second increase in the past ten years; the first one took place a year ago, in December 2015.
The Fed explained its decision with the continuation of moderate growth in the US economy and the improvement of the situation in the labor market. Although inflation remains below the 2% target, the Fed expects its gradual acceleration in the medium term. The interest rate hike was widely expected.
The Fed expects the economy will need only "gradual" increase in interest rates in the future, the regulator said in a statement.
During the press conference, Yellen said that now is too early to say how the new policy of Donald Trump could affect the United States economy. The Fed chairman said that the country's economic outlook is "highly uncertain."
"All members of the Committee recognize the serious uncertainties about how economic policy may change and how it will affect the economy” - said Yellen. She noted that she would not give any advice to the elected president of the United States on how to conduct the economic policy.
"I am a firm believer in the independence of the Federal Reserve," - Yellen told reporters.
Economic forecasts
The Fed also released its economic forecasts for the next three years.
The bank assumes that the federal funds rate could rise to 1.375% in the next year, to 2.1% in 2018, and to 2.9% in 2019.
The current average rate is at around 0.625% after raising rates by 25 basis points to 0.5-0.75%. Thus, the Fed raised its expectations for interest rate and the number of its raises in 2017. The Fed now plans next year to increase the rate three times, by 25 basis points for each increase, while in September, the regulator wanted to raise the rate in 2017 only twice.
The US currency has responded to this by a sharp rise. At the time of writing the news, the dollar rose 0.8% against the euro, to 1.0530. The dollar index rose to 102.05.
The Fed expects that the GDP growth will be 2.1% next year and will remain at approximately the same level until 2019.
The unemployment rate will fall to 4.5% in the period from 2017 to 2019 according to the Fed. Inflation will rise to 1.9% next year and will remain at that level over the next two years.