The Fed raises interest rate by a quarter point

Investopedia calls it “one of the most influential interest rates in the US economy”.

The Federal Reserve’s decision announced Wednesday afternoon to lift short-term interest rates marks the end of an era that severely pinched banks’ lending profits and forced them to change the way they do business. The federal funds rate had been 5.25% in 2006 and 2007. “The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run”.

Federal Reserve Chair Janet Yellen answers a question from President of the Economic Club of Washington, David Rubinstein, while speaking at the Economics Club of Washington in Washington this month.

Over 12 million jobs have been added since the recession ended.

“It’s the Fed giving its seal of approval on the economy and financial conditions, but also the Fed didn’t surprise with a more aggressive future path, ” said Stephen Wood, who helps manage $237 billion as a chief market strategist for North America at Russell Investments in NY, according to Bloomberg. The Fed tried to cool it down by raising rates.

The rates for borrowers are going up, but customers with savings accounts and CDs aren’t likely to see such an immediate increase in the interest rates paid to them by banks for holding their deposits.

We predict the Bank will hold its nerve until the third quarter of 2016, but interest rates will need to rise at some point.

“It doesn’t affect consumers much in that we won’t see big moves in things like credit cards or home equity loans”. And it expressed more confidence that inflation, which has been running well below the Fed’s 2% target, would begin rising. The S&P 500 is up 3 percent over the last three days.

Read the full Fed statement here.

The decision will be released on Wednesday at 2 p.m. (1900 GMT), with markets prepared for an initial 25 basis point “liftoff” that would move the Fed’s target rate from the zero lower bound to a range of between 0.25 and 0.50 percentage points. The modest move increased the range for the funds rate from between zero and 0.25 percent to a range of 0.25 percent to 0.5 percent.

Yellen said the Federal Reserve now expects that with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen, although developments overseas still pose risks to USA economic growth.