The U.S. Federal Reserve raised key interest rates for the first time in nine years Wednesday, a landmark turnaround that symbolizes the confidence that the world’s largest economy has strengthened enough to graduate from near-zero rates.
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“With the economy performing well and expected to continue to do so, the committee judges that a modest increase in the federal funds rate is appropriate”, Fed Chair Janet Yellen said Wednesday.
FOMC members said they expect economic activity to “expand at a moderate pace” and “risks to the outlook for both economic activity and the labor market as balanced”.
Normally, the Fed raises rates when it worries that the economy is overheating.
In short, there hasn’t been much new information for the markets to digest.
The decision takes the range of rates banks offer to lend to each other overnight – the Federal Funds rate – to between 0.25% and 0.5%.
The Fed said the increase was warranted by an improved economy, and stressed that it would move very gradually to bring borrowing costs back up to more historically normal levels.
In deciding its next move, the Fed would put a premium on monitoring inflation, which remains mired below a target of 2-percent a year.
Mortgages tend to follow the 10-year Treasury, but a steady increase in short-term rates eventually will trickle up to home loans, McBride said.
Putnam argues that longer-term prospects for both general and core inflation are quite subdued – he predicts a tepid 1.5-2.0 percent range at the end of 2016. But making a move in between official policy meetings would have been bold and might have scared the stock market.
The move is the first increase in interest rates in the U.S. since 2006. Both have lowered their projections during the past couple years, though the futures market reversed course a bit in recent months – probably reflecting the growing realization that the Fed would finally initiate liftoff this month.
We think this will influence fence-sitting buyers-and, more important, fence-sitting sellers who intend to buy as well-to act before rates get much higher.
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The unanimous decision in America will see its central bank raise the interest rate up from almost zero to nearly one quarter of one per cent.
