For the first time since 2007, the U.S. central bank acted to push interest rates up, raising its target rate for federal funds by just a quarter-point, to 0.5 percent. In a statement released today, the Fed said "there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective."
However, the Fed recognized that it takes time for policy action to affect the economy, and it used this to help justify the rate increase. It will continue to watch carefully future developments, expecting that the economy will continue to improve only gradually, with the federal funds target rate "likely to remain, for some time," below long-run levels.
Moreover, "financial and international developments," the Fed said, will play a major role in future interest rate decisions.
So a bit of inflation is OK, according to the Fed's current thinking, and for now, prices generally are rising by less than the 2 percent rate that the central bank deems acceptable.
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