Fed raises interest rates amid ongoing US recovery

“The Fed has made it clear that rates will continue to rise in the USA, but not in a drastic way, just with gradual increases as the economy improves”.

Indonesia’s central bank held its benchmark interest rate unchanged on Thursday, as expected, but raised the possibility of a cut in January after the country’s markets took in their stride the Federal Reserve’s first rate hike in almost a decade. That rate represents the upper end of the fed funds range, at 0.5 percent.

The decision by the Federal Open Market Committee (FOMC) is a sign the USA economy is back on track after the financial crisis and ready to wean itself off the financial life support of record low rates. When the USA dollar is falling, investors tend to look for alternative sources like gold, but the opposite can be true. You can read how it works here.

The bond market didn’t react much. Yields on U.S. Treasuries rose, while the dollar was largely unchanged against a basket of currencies. Rates on credit cards and home equity loans and credit lines, for example, will most likely rise, though probably only slightly. The Fed’s benchmark rate doesn’t directly affect them.

The Nikkei spoke with a market expert to discuss the US central bank’s decision and the outlook for future rate increases.

Juda Agung, BI’s executive director for monetary and economic policy, said it could ease policy “through a quantitative move or through interest rate”.

“The rate squeeze will happen between the dealer and its finance company rather than the dealer and the consumers”, Szakaly said.

In an interview, he said many business customers already had taken steps to counter the expected rate increase. But nervous investors have been looking for further assurances.

U.S. Federal Reserve Chair Janet Yellen speaks at a press conference in Washington on Wendesday. That rate had been near zero for seven years.

“All those reasons people buy houses remain the same, whether mortgage rates are 4 per cent or 4.25 per cent”, McBride said.

“Considerable improvement” in the jobs market spurred the Fed into action.

But Bank of England governor Mark Carney has appeared to play down the prospect that it would follow suit – with Britain seeing near-zero inflation and slowing wage growth. It suggested this would happen as the effects of declines in energy and import prices fade and the job market strengthens further.

In a December 9 Reuters poll, economists forecast the federal funds rate would rise to be 1.0-1.25% by the end of 2016 and 2.25% by December 31, 2017.

“Automobile rates, which are at all-time low, will go up a little bit, maybe a quarter (of a percentage point)”, said Mahoney, a former president of Citizens Bank of MA.

However, it also has to juggle the need to respond to soft economic data in the top copper exporter.