FOMC increases target rate by 25 basis points

The target for the federal funds rate was increased by 25 basis points to 2 percent at last month's meeting of the Federal Open Market Committee. In its statement, the FOMC said it "believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Output appears to be growing at a moderate pace despite the rise in energy prices, and labor market conditions have improved. Inflation and longer-term inflation expectations remain well contained."

In its statement, the FOMC said it perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters to be roughly equal. With underlying inflation expected to be relatively low, the FOMC said it believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the FOMG said it will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.

In a related action, the Board of Governors unanimously approved a 25 basis point increase in the discount rate to 3 percent.

Following the FOMC and Fed actions, money center banks announced increases in their prime rates from 4.75 percent to 5 percent.