They thought there might be hope on Wednesday when the Federal Reserve, America’s central bank, finally raised interest rates for the first time in almost a decade.
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The increase of 0.25 percent is a sign the Fed is confident that the US economy has improved significantly since the benchmark short-term rate was set near zero in 2008 to help save the financial system in the depths of the financial crisis that ushered in what has become known as the Great Recession.
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 Fed chief said “diminishing slack” in the labor market will give workers more bargaining power for wages next year, and Fed economists think the inflation rate next year will be 1.6 percent and 1.9 percent in 2017.
Every other developed nation that has raised rates since the end of the financial crisis has been forced to backtrack as economic conditions proved unable to handle higher rates.
Fed Chair Janet Yellen stressed that Wednesday’s rate hike was pre-emptive. The Fed tried to cool it down by raising rates.
Interest rates in the USA have been at near zero since late 2008. This determines the amount of interest the Fed pays banks to keep their money sterilized (out of the economy) and stashed at the Fed.
The Fed said the pace of any future rate hikes will be “gradual”.
Some analysts had argued that the economy was not ready for an interest rate rise just yet and that the Fed is jumping the gun.
Asian stock markets jumped on Thursday as investors chose to take an historic hike in US interest rates as a mark of confidence in the world’s largest economy, though the good cheer did not extend to oil where oversupply again pressured prices.
He told the Financial Times ahead of the Federal Reserve’s decision that the United Kingdom still faced a “low for long” scenario, stating the economic conditions for a rise in the United Kingdom were still not in place. They also foresee unemployment will fall to 4.7 percent by the end of next year, from its current rate of 5 percent.
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As the chart shows, the Fed and the market are slightly more in agreement than they were in September, the last time the central bank published official forecasts. One of the issues policymakers will watch closely in coming days is how long-term mortgage rates, consumer loans and other forms of credit react to a rate hike meant not to slow an economic recovery but nurse monetary policy back to a more normal footing.
