Gold prices down after Fed rate hike

It’s easy to see why.

It could mean changes for the consumer, however.

Larry Summers, a former economic advisor to the Obama Administration, stated in his blog that choosing to hike rates now merely for the sake of raising them would be a critical mistake, especially since it could only slow down an already slow moving economy.

The central bank believes the USA economy is strong now and no longer needs crutches. Rates for credit cards and home equity lines of credit should rise, typically by the same amount as the Fed’s increase.

A big part of the Fed’s policy explanation was around its observation of how much the job market has improved, even though it also acknowledged a few issues, like sluggish wage growth. If rates stayed at near zero, the Fed might not have the tools to combat a recession. Three key indicators show that the economy, despite adding jobs for an unprecedented 62 months in a row, still has a lot of room for sustainable improvement.

While that sounds great, there’s also risk that the Federal Reserve’s policy of easy money overshoots the mark and causes inflation to heat up. Right now, the Fed’s preferred price gauge is up a scant 0.2 per cent over the past 12 months. “It makes sense, given the divergence of the path of the USA economy and the rest of the world”. If so, Frank Nothaft, Chief Economist at CoreLogic, forecasts that the average 30-year fixed mortgage would rise from roughly 4 percent to about 4.5 percent.

“The Federal Open Market Committee made a decision to raise the target range for the federal funds rate by one quarter percentage point bringing it to one quarter to one-half per cent”, US Federal Reserve Board Chairwoman, Janet Yellen told. The federal funds rate for November was just over a tenth of a percent.

It surged because traders saw the decision to raise the USA interest rate as a positive. How can money be nearly free?

Known as “liftoff”, the Fed’s action is expected to be the first of more rate increases that will probably come in 2016, CNN said.

Major banks such as JPMorgan Chase and Citigroup were especially strong, with several immediately announcing they were hiking their prime lending rates to 3.5 percent from 3.25 percent in the wake of the Fed’s move.

The Fed put interest rates near zero during the financial crisis in December 2008 to help stimulate the economy and boost the collapsed housing market.

The price for benchmark oil slid below US$36 a barrel on Wednesday from highs above US$108 little more than a year ago.

“Policy remains accommodative”, Yellen said.