US Fed raises interest rates

On inflation, he saw it rising toward the Fed’s 2-percent goal next year as the effects of a strong dollar and falling energy prices dissipate. S&P 500 futures added 0.1 percent to 2,066.10. But the statement announcing the rate hike said the committee now expects “only gradual increases” in rates.

Asked about Wednesday’s USA interest rate increase, economy minister Akira Amari told reporters that financial markets “are reacting positively to a path Washington has started taking toward normalization of (its) monetary environment”.

Investors were cheered by Fed chair Janet Yellen’s pledge to raise borrowing costs only gradually.

David Absolon, inveatment director at Heartwood Investment Management said Ms Yellen had “skilfully steered” towards yesterday’s rate rise.

This was an idea that Yellen, in her news conference immediately following Wednesday’s decision, also sought to emphasize, saying that rate hikes, though gradual, would not necessarily be all a quarter of a percentage point or evenly spaced in the calendar year.

There are unlikely to be any capital outflows from India because of the Fed rate hike, analyst said.

To edge the target rate from its current near-zero level to between 0.25 percent and 0.50 percent, the Fed said it would set the interest it pays banks on excess reserves at 0.50 percent, and would offer up to $2 trillion in reverse repurchase agreements, an aggressive figure that shows its resolve to pull rates higher.

If that happens, he said, the Fed would not hesitate to cut rates and perhaps buy more bonds or promise to keep rates low for a certain period of time.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 98.76, after hitting highs of 99.00 overnight, the most since December 3.

“If the Fed is going to raise the rate four times next year, eventually higher U.S. interest rates are very negative to the price of gold and also the higher U.S. dollar is quite negative”, Bob Takai, chief executive officer and president of Sumitomo Corporation Global Research, said from Tokyo. America has gone from unleashing a financial crisis on the world to driving the subsequent recovery, albeit modestly, with US growth forecast in the low 2% range this year. Homebuyers, investors, savers, and business people will all begin to see more interest building up in their bank accounts. Solid job gains, they said, indicate that the labor market is healing and unemployment should continue to fall.

Most economists expect this rate increase will have little impact.

The last time Canadians heard from Bank of Canada governor Stephen Poloz, he talked about the potential of lowering interest rates below zero per cent in the event of a crisis, but insisted the bank has no plans to do that.