Economy

Interest Rates Hit a Milestone for First Time Since 2008

Interest Rates Hit a Milestone for First Time Since 2008”

In view of realised and expected labour market conditions and inflation, Federal Open Markets Committee (FOMC) chose to raise the target range for the federal fund's rate to 1 to 1-1/4%.

The central bank also confirmed that later this year it would begin to implement a plan to reduce the size of its investment holdings, which were built up to record levels during the financial crisis to help support the economy, especially once interest rates reached zero.

"I think it was all expected, the USA economy is doing pretty good, we're pretty close to full employment and inflation is pretty close to the target".

U.S. jobless claims were slightly lower than expected at 237,000 in the latest week from 245,000 previously while there was a sharp increase in the New York Empire index to 19.8 for June from -1.0 in May.

The announced phased reduction of the Fed's bond purchases would start with $6 billion a month from Treasuries and $4 billion a month from mortgage bonds, increasing each quarter until the Fed's balance sheet is being reduced by a total of $50 billion a month or $600 billion per year.

The Federal Reserve interest rate decision met market expectations with a further 0.25% increase in interest rates to 1.00-1.25% and the second rate increase on 2017.

Picture it as a double thumbs up from Fed chairwoman Janet Yellen.

They lowered projections for 2017 to 1.6% from their March estimate of 1.9%. Annual inflation is running at 1.7 percent. It's either that the recent wobble in economic data is temporary and the next two months should prove it, or the Fed wants to have enough tools in case the economy fell into a new recession. "We are still coming up short on our inflation target, and the job market continues to strengthen, suggesting that slack remains", Kashkari wrote after objecting to a rate rise earlier this year. While the increase reflects renewed confidence in the USA job market and the wider economy, some critics remain concerned the current level of inflation still isn't high enough to justify the decision. Analysts tell the Washington Post that many people are unlikely to notice the effects of the rise in rates, though people with large mortgages or a lot of credit card debt may start to feel the pinch.

One FOMC member, Minneapolis Federal Reserve Bank President Neel Kashkari, dissented from the decision, preferring to keep policy on hold for now.



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