The U.S. Federal Reserve raised interest rates Wednesday for the first time in a decade, a move that sent our dollar lower, underscoring the widening gap between a strengthening U.S. economy and our lacklustre growth.
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“The U.S. economy has shown considerable strength”, said Federal Reserve chair Janet Yellen. The December rate hike brings the federal funds rate to 0.25%, up from 0%. But the statement announcing the rate hike said the committee expects “only gradual increases” in rates going forward.
The global headwinds stemming from difficulties in emerging economies such as China, Russia and Brazil could further suppress inflation and hurt hiring, possibilities that the Fed might struggle to model. That might then prompt the Fed to delay further rate hikes.
Stocks closed up sharply higher.
The Dow Jones industrial average, which was up about 75 points just before the Fed announcement, ended the trading day with a gain of 224 points, at 17,749.
The bond market didn’t react much.
Rates on mortgages and auto loans aren’t expected to rise much soon.
“We won’t automatically change deposit rates because they aren’t tied directly to the prime [rate]”. “There are pressures on some sectors of the economy, particularly manufacturing, and the energy sector…but the underlying health of the USA economy I consider to be quite sound”.
The Federal Reserve’s interest rate hike means that it will be slightly more expensive to get vehicle loans, mortgages and credit cards.
The U.S. Federal Reserve has hiked interest rates for the first time since the global financial crisis.
“Historically, they have ticked higher in the aftermath of an announcement like this”, Graham said. “We’ll continue to monitor the market to make sure we stay competitive”, a JPMorgan Chase spokesman said. And the dealers may choose to receive lower profits to keep the rates low.
Steven Szakaly, chief economist for the National Automobile Dealers Association, told the Associated Press that dealers will pressure financing companies to maintain low loan rates. “Consumers won’t even feel it”. “Interest rates really affect a buyer’s buying power”, said Carrie Schlegel with Better Homes & Gardens Realty in Raleigh. And they forecast the rate will be 2.38 per cent at the end of 2017 and 3.25 per cent at the end of 2018, both a quarter-point lower than in September.
“Monetary policy remains accommodative”.
Kiernan said it was hard to gauge what this tightening cycle would look like or what interest rates might peak at.
The statement struck a generally more upbeat tone in its assessment of the economy. However, the rise in the United States dollar will have the opposite effect because it improves the competitiveness of imports into the USA market. And it expressed more confidence that inflation, which has been running well below the Fed’s 2 percent target, would begin rising. This is the fed’s first rate increase since June 2006, almost ten years ago.
The central bank will raise short-term rates from the 0.0%-to-0.25% range to between 0.25% and 0.50%.
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Canada’s central bank has cut its own key lending rate twice this year.
