Federal Reserve Hikes Interest Rate by 0.25%

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Image via Tim Evanson/Flickr CC

The Federal Reserve raised interest rates by 0.25 percent Wednesday at the end of its two-day policy meeting.

The new target range for the federal funds rate is 1.75 percent to 2 percent.

The Federal Open Market Committee cited a number of issues in making its decision -- job gains, declining unemployment and stronger inflation at 2 percent.

Earlier this year, the Fed indicated it would make three rate hikes this year, but raised that projection to four Wednesday.

Interest rates exceeded 5 percent through much of the 1990s, but were near zero in the years after the start of the 21st century. Wednesday's rate change is the seventh since 2015.

Higher rates serve savers, as interest rates on deposits would rise, and mean higher rates for borrowers. As banks are charged more for money, they can raise rates on small business loans, credit cards and mortgages. Many credit card loans already come with a variable interest rate pegged to Fed rate increases. Companies that seek expansion or carry a lot of debt could suffer with additional hikes by the central bank.

The Federal Reserve faces the question of how quickly to raise rates without spurring too much inflation or slowing a growing U.S. economy.

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