The Federal Open Market Committee unanimously voted to increase the benchmark federal funds rate to ½ percent from ¼ percent, saying the USA economy was growing at a “moderate” pace – the same language it has been using for a long time.
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The Fed plans to follow a “gradual” path. It will monitor the consequences of broader global pressures: Growth in China has slowed, Japan has barely skirted recession, Brazil has been collapsing and Europe is struggling. Still, higher interest rates strengthen the dollar, which works against exporters.
After the financial crisis, the Fed turned to other extraordinary measures, including a series of bond purchases meant to shrink long-term loan rates.
The Federal Reserve has just announced a doubling of base interest rates, marking another step on the road to recovery from the 2008 financial crisis. Yellen said Fed officials are “reasonably confident” inflation will reach that target as the effects of falling oil prices and a stronger dollar fade. Home financing could also be affected, with rates increasing for home mortgages, thereby likely reducing the number of people who would qualify for a loan.
In fact, Yellen made clear in her speech that the FOMC would not necessarily look for rises in inflation when considering future rate hikes.
In addition to Wednesday’s hike of the federal funds rate, the Fed said gradual increases to the benchmark are expected to happen throughout 2016 – as long as the economic outlook continues on target.
The Fed had been expected to raise rates at its September meeting. “In the past, the Fed has used changes in reserve supply to try to increase the rate banks pay when they borrow reserves from other banks”.
America’s first interest rate hike in almost a decade is here. The yield on the 10-year Treasury note held steady at 2.27 percent.
“I think the impact of this rate hike [on footwear] will be minimal – I don’t think it impacts consumers directly that quickly”, Priest said.
The fed also indicated it may raise interest rates again in 2016, but Yellen said it will go slowly.
Yellen said the “odds are good” the economy would have ended up overheating had the Fed not taken action.
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The U.S. Federal Reserve has come out with its decision and aside from some usual Fed decision short term volatility, the market has resoundingly yawned.
