US Federal Reserve raised interest rate to 0.5 percent

U.S. Federal Reserve Chairman Janet Yellen holds a news conference to announce raised interest rates in Washington December 16, 2015.

“I think the big message is: the economy is good enough that they can tighten policy”, said Vincent Reinhart, a resident scholar at the American Enterprise Institute.

Emerging markets could be particularly vulnerable, as many have amassed greater debts while interest rates have been at historic lows. Under the 1960s’ Martin Fed, for example, the financial systems was still heavily regulated, the economy was in the early stages of a shift from manufacturing to services, and globalization of the credit markets had not yet complicated the USA central banks job of managing the domestic supply of money and cost of credit. “We have taken care to avoid unnecessary negative spillovers”, she added.

While it is the first movement in the better part of decade, AMP Capital chief economist Shane Oliver said the decision was not one that came out of the blue.

If inflation rises faster than expected, the Fed has to raise rates even quicker than it planned – something that would spark volatility in stocks and bonds across the globe.

The Fed has repeatedly pushed back the goal post since slashing its target rate to zero during the financial crisis.

Mr Oliver said the main relevance of the U.S. rate hike is what it means for the Australian dollar. At the same time, investors were encouraged that Fed emphasized that further increases will be gradual. “However, if the rate rises continue and become larger, the downside impact in advanced economies will be more serious”.

At the other end of the scale, there’s the clear likelihood that, should the Bank of England base rate follow the USA fed rate, mortgage rates will similarly increase.

“The Fed reaffirmed that the pace of rate hikes would be slow”, James Marple, TD Economics senior economist wrote in a research note.

We pretty much know what the Fed’s plans are. Should the economy stumble, the Fed could postpone further rate increases.

Due to rotation of members, the FOMC in 2016 will be a bit more hawkish-inclined to raise rates-than the outgoing panel.

Bank Indonesia kept interest rates unchanged on Thursday, as expected, but said it saw more room to lower them next year.

The median forecast among economists polled by Reuters, however, is that the fed funds target rate would be 1.00-1.25 percent by then.

NO HEAT NEEDED FOR 2017, 2018 In a wide-ranging, hour-long interview at the San Francisco Fed’s headquarters, Williams said he expects easy Fed monetary policy to help push the unemployment rate, now at 5 percent, down to around 4.5 percent by the end of next year.