US interest rate rise for the first time since 2006 by 0.25%

by Neil Patterson

9:34 AM, 17th December 2015
About 3 years ago

US interest rate rise for the first time since 2006 by 0.25%

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US interest rate rise for the first time since 2006 by 0.25%

Janet YellenYesterday Janet Yellen, the Chair of the Board of Governors of the Federal Reserve System, announced that the US interest rate will increase by 0.25%. This is the first increase since 2006 and since 2008 the rate has been around 0%.

This means that the range of rates US banks offer to lend to each other overnight, called the the Federal Funds rate, is to be between 0.25% and 0.5%.

This is a good indicator that the US economy is growing at a sustained rate and projected growth by the US Central bank for next year increased slightly from 2.3% to 2.4%. with increased household spending and investment by business.

Janet Yellen said: “The committee judges that there has been considerable improvements in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2% objective.”

It is expected that there may be further small rises next year to in order to make sure there is no ‘overheating’ of the economy leading to inflation above the 2% target.

There are fears by some that a US rate rise will strengthen the Dollar against the Pound and force inflation higher in the UK by making imports, especially oil, more expensive. However, it is also a deflationary pressure by cooling US growth and demand so the two will likely have a counter balancing effect.

The Bank of England were obviously aware of this possibility and with UK inflation only just reaching a positive figure of 0.1% this November, far short of the medium term goal of 2%, there still no projected need to increase the UK interest rate.

The CBI director of economics, Rain Newton-Smith, said “alongside the US, the UK has been one of the best-performing advanced economies in recent years, but the Bank of England probably still has a way to go before rising inflationary pressures at home persuade it to follow and up interest rates.”



Comments

Michael Gerasimoff

11:32 AM, 18th December 2015
About 3 years ago

According to Leigh Stewart, a real estate analyst with Tranio, the latest Fed rate rise is only the first discreet step towards a more balanced financial policy. However, it may have unpredictable implications for global property market as investors tend "to redirect their funds into more lucrative markets (stock markets, for instance)", where there are better short-term profit expectations. https://tranio.com/usa/news/did_the_fed_just_break_the_real_estate_market_4971/
So, it seems the property market is going to be a little stand-offish for some time.


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