US Fed raises federal funds rate after one-year pause

WASHINGTON -- The US Federal Reserve on Wednesday decided to raise benchmark interest rate by 25 basis points, the first and only rate hike in 2016.

"In view of realized and expected labor market conditions and inflation, the (Federal Open Market) Committee decided to raise the target range for the federal funds rate to 1/2 to 3/4 percent," said the Fed in a statement after concluding a two-day policy meeting.

The moderate economic expansion, continued strengthening of labor market and the improvement in inflation condition supported the central bank to raise interest rate after nearly a one-year pause, according to the statement.

The U.S. economy has picked up expansion pace since the middle of this year, with support of strong consumer spending; the job market continued strengthening and the unemployment rate fell to 4.6 percent in November, the lowest level since 2007; and the inflation has increased since earlier this year, with core inflation rising to 1.75 percent.

In December last year, the U.S. central bank increased the interest rate for the first time in nearly a decade.

However, a slowdown in global economy since the start of this year and low inflation condition have made Fed policymakers cautious and hold off on any further rate hikes for seven consecutive meetings this year.

Fed officials assessed that "near-term risks to the economic outlook appear roughly balanced," but reiterated that they will continue to closely monitor inflation indications and global economic and financial developments.

Also on Wednesday, the Fed released its updated economic projections which indicated that the central bank forecasts three rate hikes next year, while in its September projections, Fed officials expected only two rate hikes in 2017.

The slight upward adjustment of forecast reflected Fed officials' consideration of the falling unemployment rate, Fed chair Janet Yellen said at a press conference following the two-day Federal Open Market Committee (FOMC) meeting.

Fed officials slightly raised their forecasts for next year's economic growth to 2.1 percent from September's forecast of 2 percent.

In response to a question on President-elect Donald Trump's economic policies, Yellen said that all Fed officials "recognize that there is considerable uncertainty about how economic policies may change, and what it might do and how the Fed might have to react."

She emphasized that the central bank will factor fiscal policies, along with other things, such as global conditions and oil prices, into economic outlook and figure out appropriate monetary policy.