US Federal Reserve interest rates hiked: Why Feds hiked by just 0.25

US Federal Reserve interest rates hiked: Why Feds hiked by just 0.25

US Federal Reserve interest rates hiked: Why Feds hiked by just 0.25

Finally the US Federal Reserve has done what was being expected for the last more than a year. The Central bank has raised rates by 0.25 percent to 0.5 percent. This shows that the United States is finally out of the web of global financial crash.

For the last nine years, the US Federal Reserve had left the rates untouched. This was the time when the US was hit hard by the global financial crisis.

The US central bank announced the 0.25 percent increase yesterday after a two-day policy meeting between officials with stocks rallying in early trading in Europe and the US.federal-reserve

This is an announcement that was being awaited by economies across the world. Nonetheless many have called the hike rather dovish. Later while address a press Janet Yellen, chair of the Board of Governors of the Federal Reserve, said the decision was taken after an “extraordinary seven year period”.

Yellen said during the press conference “The economic recovery has clearly come a long way although it is not yet complete, room for further improvement in the labour market remains…With the economy performing well and expected to continue to do so, the committee judged that a modest increase … is now appropriate.”

But the hike is rather marginal and it may be the first step towards hiking it further. Michael Hewson was quoted by leading TV channel as saying, “Some of the data we’ve seen come out of the manufacturing sector does seem to suggest that part of the US economy is in recession … some of these forecasts do seem to suggest the Fed is going to be on a gradual path”.

Earlier in a policy statement the Feds said, “The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise over the medium term to its 2 percent objective”. The federal Reserve has made it apparently clear that the rate hike was a tentative beginning to a “gradual” tightening cycle, and that in deciding its next move it would put a premium on monitoring inflation, which remains mired below target.

“In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate,” the Fed said.

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