President Trump is worried that the Federal Reserve is pushing interest rates too high, and so are some investors on Wall Street.
But, the real level of short term rates — adjusted for inflation — is still low by historical standards.
The Federal Reserve Wednesday raised its benchmark interest rate a quarter-point. But amid signs of a slowing economy, policy makers lowered their projections for future hikes.
As was widely expected, the central bank moved the target for its federal funds rate to a range of 2.25 percent to 2.5 percent. The move marked the fourth increase this year and the ninth since central bankers began moving rates higher in December 2015.
But officials now project only two hikes next year, less than indicated earlier this year but more than the financial markets are expecting, based on the bond futures prices.
The short term federal funds rate set by the Federal Open Market Committee matters because it used as the starting price for the cost of borrowing. When the Fed lowers rates, lending gets cheaper and money flows through the economy more easily, spurring growth. As rates rise, the pace of borrowing tends to slow down, along with overall economic growth.
That's what has happened recently as rates have moved higher, especially for industries like housing and autos that are especially sensitive to changes in interest rates.
The Fed's job is to keep the economy growing. But it is also focused on keeping inflation in check. That's because inflation eats away at the value of money over time. If you borrow when inflation is high, the lender has to charge higher interest rates to make up for that lost value. When inflation is low, borrowers can still make money when rates are relatively low.
With inflation currently running at about 2.2 percent, the FOMC's latest move has restored the real federal funds rate to just about zero.
By historical standards, that's fairly low. During much of the 1980s and 1990s, when the economy was strong, real rates were much higher than today. That was also true in during the housing boom of the early 2000s.