In December, the Federal Open Market Committee (FOMC) raised the target range for the federal funds rate by 1/4 percentage point after seven years in which that rate had been held near zero. The FOMC's decision reflected the considerable improvement in the labor market last year and the Committee's assessment that, even with the modest reduction in policy accommodation, the labor market would continue to strengthen and inflation would return over the medium term to the FOMC's 2 percent objective. Monetary policy remains accommodative, and the Committee expects that economic conditions will warrant only gradual increases in the federal funds rate. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
Since last March, the FOMC had anticipated that it would be appropriate to increase the federal funds rate when it had seen further improvement in the labor market and was reasonably confident that inflation would move back to 2 percent over the medium term. In December, the FOMC, judging that these criteria had been met, raised the target range for the federal funds rate to 1/4 to 1/2 percent.