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US Federal Reserve raises rates for first time since 2006
In a unanimous decision, the US Federal Reserve raised rates by 0.25% to 0.5% yesterday for the first time since June 2006, bringing months of speculation to an end.
Suggesting the US is financially back on track, Stock markets surged in a watershed moment for the global economy after the news at 2pm yesterday.
The move signals the beginning of the end of cheap money and also means the US dollar is likely to strengthen.
Janet Yellen, the Federal Reserve’s chairman, (pictured) said the decision marked “the end of an extraordinary seven-year period” of close to zero interest rates. “The US economy has shown considerable strength.”
The Federal Open Market Committee (FOMC), which dictates US monetary policy, voted unanimously to lift the Fed’s interest rates for the first time since the credit crunch. It elected to raise its target for the Federal Funds Rate (FFR) by 0.25 percentage points, from its previous 0pc to 0.25pc range.
David Absolon, investment director at Heartwood Investment Management, said: “Four [US] rate hikes are forecast for 2016, which is in line with September’s projections… Inflation is forecast to return to the target of 2% by 2018. When questioned about the impact of recent energy price falls in the press conference, Yellen seemed unconcerned. She said that the oil price did not need to rebound for higher inflation, it just needed to stabilise; Yellen seemed confident that it would.”
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Nick Dixon, investment director at Aegon UK, said yesterday’s hike was expected and confirms a strongly recovering US economy.
“It is a pre-emptive strike to mitigate emerging inflationary pressure and limit future rate increases. Markets had already priced in gently rising rates over the next few years of which this is the first move. Those expecting a domino effect this side of the pond will be left disappointed.”