Fed ends low rate era, future hikes gradual & data dependent

By FXStreet FXStreet (Mumbai) – Ending the zero interest rate regime that the US Federal Reserve had held steady for almost a decade, the Fed finally raised increased the Fed funds target range by +25bps to 0.25%-0.5%. The raise was in line with broad market expectations. The increase in rate can be justified considering the significant improvements seen in the economy.

Unemployment rates have held steady at 5 per cent implying the strengthening of the labor market. The latest inflation report also showed a rise in inflation from 0.2 to 0.5 per cent month on month in November. These figures put to rest concerns whether the economy was prepared to embrace higher borrowing costs. Fed Chair Yellen noted “With the economy performing well and expected to continue to do so, the committee judges that a modest increase in the federal funds rate is appropriate.”

The Fed expects the recovery process to continue. Unemployment is anticipated to fall to 4.7 per cent in 2016 while economic growth can be expected to rise 2.4 per cent.

Rate hikes to be gradual

The rate of subsequent rate hike, Yellen said would be gradual and dependent on incoming economic data. Before taking decision of subsequent hikes the Fed would …read more

Source:: FX Street