What is the federal funds rate?
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“For the average consumer, it means they’ll be paying higher mortgage rates; credit card interest rates will be higher”, he said. The Fed’s benchmark interest rate has limited influence on those things.
Westpac senior currency strategist Imre Speizer said, “Janet Yellen has been stressing the idea that the rate hike path will be very gradual, and that’s a dovish spin which is pushing the United States dollar down and the New Zealand dollar higher”.
The rate “is likely to remain, for some time”, below the longer-run level of about 3.5 percent, it said.
Federal Reserve Chair Janet Yellen’s Washington news conference is shown on a television screen on the floor of the New York Stock Exchange, Wednesday, Dec. 16, 2015.
That still would be extremely low by historical standards.
The rate forecasts, or dot points, from Fed members were a little higher than many expected with 100 basis points of hikes pencilled in for next year and a terminal rate of 3.5 percent. That rate represents the upper end of the fed funds range, at 0.5 per cent. The Fed will also use the overnight reverse repurchase program to drain reserves.
The U.S. central bank believes the economy is strong enough now that it no longer needs crutches, and that the move “marks the end of an extraordinary period” of low rates created to boost the recovery from the Great Recession. Auto-loan costs may rise as well, economists said, though not as fast as the short-term rate the Fed controls.
In 2008, the rate was slashed in the middle of one of the worst economic downturns in USA history. For the a year ago, the economy has added about 237,000 jobs a month.
Fed policymakers said they expect the downward pressures of oil prices to be temporary.
But it was expected that long-term interest rates, of more than five years, could start to track up in line with the Fed’s moves.
Fed policymakers slightly upgraded their forecast for economic growth next year. It also lowered its projection for unemployment in 2016 to 4.7% from 4.8%.
In a statement the Federal Reserve said economic activity had been “expanding at a moderate pace”.
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Many savers are fed up that they have earned nearly nothing on their savings at the bank for years. The metal had rallied before the Fed decision on Wednesday and managed to hold on to most gains post the central bank statement, ending the day up 1.2 percent.
