US Federal Reserve raises interest rates by 0.25%

Economy - Himanshu Gill - Dec 15,2016

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us federal reserve raises interest rates by 025

The US Federal Reserve raised its benchmark interest rates by 0.25%, signaling chances of more regular increases in the upcoming years.

The rise in the interest rates, currently in the range of between 0.50 percent and 0.75 percent, was highly anticipated. The US central bank said that there could be three more increases in interest rates in 2017 in adaptation to the upcoming Trump’s administration which promises tax cuts, spending and deregulation.

This is the first time the Fed has increased rates in the past one year after December 2015 and the second time in the past one decade since the 2008 financial crisis.

Janet Yellen, the Fed’s chairperson, said that economic growth has been strong and unemployment is lowering, focusing that the increases would be ‘gradual’. She added that even though the economy is showing growth but it is highly uncertain, thus the Fed has decided on a modest shift in the interest rates.

The Fed believes that Donald Trump’s administration would be highly critical in deciding in what direction does the economy goes. The Federal Open Market Committee (FOMC) said that it expected to raise short-term rates by another 0.75% percentage points next year in three separate quarter point moves, up from a previously predicted 2017 increase of 0.5%.

These decisions to raise rates with the agreement of all the FOMC members were made in a meeting after Trump’s victory in the presidential elections.

Rates had been near zero since the global financial crisis, but the recoveries in US economy underlined by recent data on consumer confidence, jobs, house prices and growth in manufacturing and services have encouraged the Fed to take a decision on the interest rates. Although inflation is still below the Fed's 2% target, the authority expects the rise in prices to pick up gradually over the medium term.