The Federal Reserve announced the first interest rates hike in almost a decade Dec.16. Federal Reserve Chair Janet Yellen said the Fed expects the economy to grow at a moderate pace. (AP)

The Federal Reserve voted Wednesday to raise interest rates and begin pulling back its unprecedented support for the American economy, ending an era of easy money that helped save the nation from another Great Depression but has yet to produce a full-throttled recovery.

The unanimous decision will nudge the central bank's benchmark interest rate up from near zero by a quarter of one percent to a range of 0.25 to 0.5 percent. The move is small, but it amounts to a vote of confidence that the American economy -- dogged by volatile oil prices, a slowdown in China and weak global growth -- will stand resilient. But the Fed also pledged to wean the nation off its stimulus slowly, an acknowledgement that further progress is not guaranteed and that the central bank is operating in uncharted territory.

"I feel confident about the fundamentals," Fed Chair Janet Yellen told reporters after the vote. "We have been concerned  about the risks from the global economy. Those risks persist, but the U.S. economy has shown considerable strength."

Still, the move could spell the end of the rock-bottom rates on mortgages that spurred a refinancing boom and supported higher home prices. The cost of an auto loan is also expected to rise, dimming one of the brightest spots in the economy. One recent analysis predicted a 1 percent increase in interest rates could slow car sales by more than 3 percent.

Savers, however, may finally start to feel some relief after years of meager returns on investments in safe assets such as certificates of deposits and money market funds. Still, analysts cautioned that any improvement would likely be slow.

Returns "may not improve quickly enough from the perspective of those individuals who have already suffered through more than a half decade of historically low, and often inadequate, fixed income yields," said Michael Thompson, chairman of S&P Investment Advisory Services.

Markets rose after the announcement of a rate hike. The Dow Jones industrial average and Standard & Poor's 500 index were up around 1.5 percent by the end of Yellen's press conference. The yield on the 10-year Treasury note was up four basis points to 2.30 percent.

The Fed slashed the target for its benchmark interest rate all the way to zero in late 2008, an historic move aimed at arresting the economic downturn after the implosion of the subprime housing market toppled Wall Street giants and shook the world’s faith in America’s financial system. The unemployment rate was headed up to 10 percent as hundreds of thousands of workers lost their jobs each month.

Now, the jobless rate has fallen by half, and official Fed forecasts released Wednesday show it believes unemployment will dip to a median of 4.7 percent near year before leveling off. The economy has added jobs for 69 consecutive months, the longest streak on record. The broadest measure of the recovery’s health -- the pace of the expansion -- has averaged a solid, albeit unspectacular, 2 percent over the past five years. Officials predicted it would pick up to a median of 2.4 percent in 2016.

For the nation’s economic stewards, it has all finally added up to convincing evidence that the country is no longer in crisis and the recovery has taken root.

“This action marks the end of an extraordinary seven-year period," Yellen said. "The economic recovery has clearly come a long way, although it is not yet complete.”

The last time the Fed raised interest rates — in 2006 — the iPhone had not been introduced. Many of the young adults hunting for their first homes or staffing Wall Street’s trading desks have never experienced a rate increase, and it remains to be seen how they will adjust to this new environment.

The central bank’s vote Wednesday technically sets a range of one-quarter to one-half of a percent for its influential rate. In addition, the Fed is using complex new financial tools to implement the rate hike, creating another layer of uncertainty.

"It all about the speed at which rates rise and where they settle," said Luke Bartholomew, investment manager at Aberdeen Asset Management. "It will be very steady but probably not as steady as markets are expecting. The U.S., and world, has taken a very long time to get over the financial crisis, which is why interest rates have been so low for so long."

In many ways, the recovery still seems to be falling short. The pace of economic expansion remains significantly slower than it was before the financial crisis. Wage growth has been stagnant, and many unemployed workers have given up hope of ever finding a job.

But Fed officials believe rectifying those problems is the responsibility of lawmakers in Washington, not monetary policymakers. In the aftermath of the financial crisis, the central bank often expressed frustration with the political gridlock that led to across-the-board federal spending cuts, a government shutdown and the threat of breaching the nation’s debt limit. The ensuing economic damage made the Fed reluctant to withdraw its support sooner.

At the same time, lawmakers have ramped up criticism of the Fed as it tested the boundaries of its powers. In addition to cutting its target rate to zero, the Fed pumped roughly $3.5 trillion into the economy, buying up long-term Treasuries and mortgage-backed securities. House Republicans passed a bill last month that attempts to rein in the central bank by requiring it to follow prescribed rules for setting interest rates and explain why when it doesn’t.

“Unsustainably low interest rates clearly didn’t solve the problem or else Americans today wouldn’t be stuck in the slowest, worst-performing economic recovery of our lifetimes," Texas Republican Rep. Jeb Hensarling, who heads the House Financial Services committee, said on Wednesday.

On the other side of the aisle, some Democrats are now worried the Fed is moving too soon. Michigan Rep. John Conyers is sponsoring a proposal that would make reaching a jobless rate of 4 percent one of the Fed’s core goals.

“It is unacceptable for any branch of government to take any action to slow our economy before all Americans have the opportunity to experience the jobs recovery and meaningful wage growth,” he said in a statement.

The Fed’s decision was explicitly telegraphed and widely anticipated. Over the past year, Yellen began signaling that the central bank would raise rates in 2015 -- but didn’t specify when. Moving too soon risked undercutting the recovery’s momentum, but waiting too long could stoke dangerous financial bubbles or force the Fed to act more aggressively down the road.

Within the central bank, its 17 top officials were divided. Richmond Fed President Jeffrey Lacker and Cleveland Fed President Loretta Mester were ready to hike as early as this summer. But two members of the Fed’s Washington-based board of governors, Lael Brainard and Dan Tarrullo, along with Chicago Fed President Charles Evans, argued for waiting until 2016.

The economy was also sending mixed signals. Though unemployment was falling and hiring was strong, inflation remained stubbornly low. Falling oil prices and a stronger dollar were the main culprits, but officials worried low inflation might also signal deeper weaknesses in the economy.

Then in late August, new fears emerged over the extent of China’s slowdown amid plummeting commodity prices and wild swings in financial markets. That prompted the Fed to stay its hand in a nail-biter meeting in September.

But as the global outlook stabilized, officials began more assertively declaring the U.S. economy was ready and targeted their last meeting of the year to make the momentous decision. On Wednesday, two Fed officials still indicated they believed the central bank should delay. But there were no dissents on the vote to raise rates.

“It takes time for monetary policy actions to affect future economic outcomes," Yellen said on Wednesday.

If the Fed waited too long to raise rates, it may be forced to hike them abruptly, increasing the risk of throwing the economy into recession in the process. But Yellen pointed out that moving gradually before making further increases means that "the stance of monetary policy remains accommodative."

Yellen has said the Fed will consider both "realized and expected" movements on inflation, the labor market and financial and international developments in deciding when to make its next moves. But she refrained from providing specific metrics that would tip the central bank into action.

“I’m not going to give you a simple formula for what we need to see on the inflation front in order to raise rates again," she told reporters.

Fed officials Wednesday projected the benchmark rate would rise to a median of 1.4 percent by the end of 2016, suggesting a hike at every other meeting next year. The forecast for the following two years dipped slightly from what the central bank had predicted in the fall. The estimate of its target rate dropped from 2.6 to 2.4 percent in 2017 and from 3.4 to 3.3 percent in 2018.

Economists, including those inside the central bank, are debating whether rates will ever return to the their pre-crisis levels. The Fed's forecasts show officials believe rates will eventually rise to 3.5 percent, below the historical norm of 4 percent.

"This really isn't an end. It's a beginning,” said Tim Duy, a former Treasury official and economics professor at the University of Oregon. "We got into this. Now how are we going to get out?"

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