Fed Reserve raises key interest rate

It also closes a chapter, where from 2008 until Wednesday, the Fed threw everything but the kitchen sink at the US economy in hopes of staving off a financial collapse and later shorten the time it took to get back to recovery.

However, supporters like Hoffman point out that the first hike is hardly more than a “baby step” and that further increases, as Yellen is expected to stress, will depend on how the economy continues to perform. Investors will look to see if the Fed spells out what would constitute further gains in hiring to justify more rate increases in 2016. Or is it the stubborn lack of inflation in the USA economy?

The Fed statement and its promise of a gradual path represented a compromise between policymakers who have been ready to raise rates for months and those who feel the economy is still at risk from weak inflation and slow global growth.

Adds Haverford CIO Hank Smith: “The Fed should symbolically hike rates with dovish language, suggesting that this won’t be the beginning of a tightening cycle”.

It’s a much-anticipated move, one Federal Reserve Board Chair Janet Yellen explained extensively during her high-profile lecture at the University of Massachusetts Amherst in September.

WALL STREET: Major U.S. benchmarks finished by posting their biggest gains in a week, led by gains in energy companies and banks. Oil prices fell sharply before paring losses.

The market-implied probability that the Fed will hike rates stood at 81% Wednesday morning, according to the CME Group’s FedWatch tool. Such rates aren’t directly tied to the federal funds rate.

“The U.S. economy has shown considerable strength”, she said. “Domestic spending has continued to hold up”.

If you want to know what happens once the Fed hikes interest rates, you’d do well to ask one of the senior executives within the central bank’s decision-making body.

And that is a lesson as we try to compare this moment when interest rates inch up to any other period. From December 17th the target band for rates will be 0.25% to 0.5%, a quarter of a percentage point higher than today (see chart 1). Keep interest rates too low and inflation roils the economy, keep inflation too low for too long and central bankers like the FED have no means to lower rates and spur the economy from recession.

Japan’s benchmark Nikkei 225 index jumped 2.4 percent to 19,009.19 and South Korea’s Kospi climbed 2 percent to 1,972.45.

The impact on business and household borrowing costs is unclear. Higher US interest rates can also make it more hard for holders of dollar denominated debt – including many exchequers and businesses – particularly if it pushes the dollar higher.