The Federal Reserve Board Open Market Committee today raised its federal funds rate target to 2%, from 1.75%. "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," according to a statement from the Fed.
"It's no surprise," said John Cerra, managing director and active fixed-income portfolio manager at TIAA-CREF Investment Management. "The Fed is removing stimulus" from the economy, and the rise in the benchmark interest rate was already "clearly discounted by investors," he said. "I agree the economy is growing at a measured pace, unexciting but acceptable," Mr. Cerra said. "I'm not clear on the labor market. If the Fed is optimistic, I'm maybe less optimistic." Also, the Fed increased the discount rate by 25 basis points to 3%. Mr. Cerra said that increase was also anticipated and is part of the same Fed action to reduce economic stimulus.