Federal Reserve hikes interest rates for first time in seven years

But despite those healthy indicators, interest rates are at emergency levels.

In particular fracking firms, which produce oil and gas, have been under scrutiny by investors. Yellen also shrugged off the drastic drop in oil prices since June. It buys some credibility to keep the path of rate rises a shallow one if she thinks it is warranted in 2016 and beyond. By starting a rate increase cycle now, before primary voters start going to the polls, the Fed does not have to pull the trigger for the first time when its actions are more likely to become a political football. There are a few reasons for this.

Subramanian further said that there should not be much volatility in the Indian markets due to this global development.

The Dow Jones industrial average, which was up about 75 points just before the Fed announcement, ended the trading day with a gain of 224 points, at 17,749.

More Fed policymakers now expect the short-term rate will be 1.38 percent or below at the end of 2016 than in previous projections in September. Moves in the Treasury market were modest, the dollar rose as expected, and world stocks broadly applauded the well-telegraphed move by the Fed.

Ms Yellen noted that the US’ economic recovery “has clearly come a long way, although it is not complete”.

“We have to consider how the Fed is going to raise its rates going forward…” This steady decline puts pressure in turn on other Asian currencies to depreciate to stay competitive.

Rising US interest rates affects how investors view risk. Most of us have variable rates. For Britain, higher U.S. interest rates give the Bank of England the flexibility to start normalising rates on this side of the Atlantic as well.

But not for some time, for this was – in the jargon of Wall Street – a dovish hike in interest rates.

While markets breathed a sigh of relief following the news that the Federal Open Market Committee had hiked rates, investors remained cautious of the implications for emerging markets.

The Fed publishes the participants’ anonymized predictions for key economic indicators, organized as a range.

The effects of the stronger dollar can already be seen in the earnings reports of USA companies. It also makes their exports less competitive on the global markets.

The Federal Reserve Systems which is the central bank of the United States of America (USA) cited increased household spending and increased investments by businesses accompanied by a low rate of inflation in the domestic economy in the USA.

In recent months some on the FOMC had shown reticence to support an increase, because, as even Yellen herself admitted earlier this month, there is still significant slack in the labor market and inflation remains very weak. That would be painful for many British exporters, as the European Union is the biggest market for British goods.