The Federal Reserve raised its key interest rate on Wednesday from a range of 0% to 0.25% to a range of 0.25% to 0.5%. Savers will eventually see a little more interest on their deposits at the bank, and mortgage rates will gradually rise.
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“Higher rates will eventually translate into downward pressure on the consumer or more specifically the consumer’s ability to finance large ticket items such as autos and homes, slowing both purchasing and construction activity”, Lindsey Piegza, chief economist at Stifel Fixed Income, said in a statement.
Dec 16 Wall Street opened sharply higher on Wednesday ahead of a widely anticipated interest rate hike by the Federal Reserve later in the day.
The committee said that allowing for these “gradual adjustments” economic activity would continue to expand at a moderate pace and the jobs market would continue to strengthen.
The unemployment rate of 5.2% was better than expectations of 5.3%.
They increased their median projection for economic growth next year to 2.4 percent, up from 2.3 percent in their prior September projections.
However, since the middle of the year, fluctuations in US interest rate expectations have dominated trade in precious metals.
Since the recession, in a program started by Bernanke, the Fed has not only kept short-term interest rates near zero but also injected trillions of dollars into the mortgage and Treasury bond markets through a process known as quantitative easing (QE). “Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession”, Yellen said.
The Fed just lifted rates, ending seven years of an extraordinary measure to combat the damage from the 2008 financial crisis. This is a crucial sign that the rising inflation Fed officials expect to see might remain elusive, as cheaper oil undercuts the economy’s ability to achieve the Fed’s 2 percent target.
USA government securities have returned 1 percent in 2015, after gaining 6.2 percent in 2014, based on Bloomberg World Bond Indexes. They will also run the repo auction between 12:45 and 13:15 Eastern (1745-1815 GMT) with banks, government-sponsored entities and some 130 money funds that do not usually do direct business with the Fed.
“These things are good for the consumer and will easily outweigh the impact of a rate increase”, said Chris Christopher, an economist at forecasting firm IHS Global Insight.
However, a lower BI rate amid a higher Fed rate would narrow the spread return global investors may gain from holding onto rupiah.
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A wrong call on inflation now could stunt job growth and possibly keep rates stuck near zero or even force the Fed to reverse course and cut rates. Fed Chair Janet Yellen has suggested many times that when the data show the economy is strong enough to handle more expensive loans, the Fed will nudge rates up.
