US Federal Reserve raises interest rates for second time in a decade

[webfact]

US Federal Reserve raises interest rates for second time in a decade

 

 

WASHINGTON: -- The US Federal Reserve has raised interest rates the first time this year and the second time in a decade.

 

America’s central bank has raised borrowing costs by a quarter-point to 0.50-0.75 percent, and sees three rate hikes in 2017.

 

Concluding the two-day policy meeting Fed Chair Janet Yellen told reporters at a press conference that the policy statement was ‘a modest adjustment’.

 

When questioned about the impact of the change in occupant at the White House, Yeller responded:

 

“Thinking about the paths and revisions, there are a number of factors taken into account…Some of the participants did incorporate some assumption of the change in fiscal policy into their outlook.”

 

But she added she wouldn’t want to speculate over the changes in fiscal policy and how it would impact the economy.

 

The hike in interest rates means that America’s central bank believes the economy and jobs market has strengthened to withstand a rise in borrowing costs.

 

In a statement released online the Fed stated:

 

“Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year. Job gains have been solid in recent months and the unemployment rate has declined.”

 

The last rate hike came in 2015 when the Fed changed rates from the zero lower bound following the 2007-09 financial crisis, in a bid to boost the economy and limit job losses. At the time, they had signalled several rate hikes in 2016 which failed to materialise. Turbulence from fears over the Chinese economy to the Brexit vote in June have meant that policymakers kept the rates unchanged.

 

 

-- © Copyright Euronews 2016-12-15

[webfact]

Fed raises key interest rate and foresees 3 hikes in 2017

By MARTIN CRUTSINGER

 

WASHINGTON (AP) — The Federal Reserve has raised a key interest rate in response to a strengthening U.S. economy and expectations of higher inflation, and it foresees three more rate hikes in 2017.

 

The Fed's move will mean modestly higher rates on some loans.

 

Wednesday's action signaled the Fed's belief that the economy has improved over the past year after a rough start to 2016 and can withstand slightly higher borrowing rates. Its expectation of three rate increases in 2017 is up from two in its forecast three months ago.

 

The central bank said in a statement after its latest policy meeting that it's raising its benchmark rate by a quarter-point to a still-low range of 0.5 percent to 0.75 percent. The Fed had most recently raised the rate last December from a record low near zero set during the 2008 financial crisis.

 

Responding to a question at a news conference, Chair Janet Yellen said she didn't think the economy needed stimulus from President-elect Donald Trump's proposed tax cuts and infrastructure spending — the kind of fiscal support that Yellen and her predecessor, Ben Bernanke, had called for in the past.

 

Yellen said such policies would be unlikely to maximize employment, since the unemployment rate — 4.6 percent, a nine-year low — is now slightly below the Fed's own long-term target.

 

"My predecessor and I called for fiscal stimulus when the unemployment rate was substantially higher than it is now," she said.

 

The Fed chair stressed that she wasn't providing advice or guidance to the incoming Trump administration. And she downplayed any expectations that Trump's economic program could lead to faster rate hikes resulting from higher inflation.

 

The Fed's move Wednesday, only the second rate hike in the past decade, came on a unanimous 10-0 vote. The central bank also released updated forecasts that showed modest changes to its outlook for growth, unemployment and inflation, mainly to take account of a stronger economy and job market.

 

James Marple, senior economist at TDBank, said the Fed's forecast of three rate increases next year, up from two, was the "only real surprise" Wednesday.

 

"The move up is a signal that the Fed has become more confident in the economic outlook and that inflation will increasingly track closer to the 2 percent target," Marple said.

 

It's hardly guaranteed that the Fed's forecast for three hikes in 2017 will prove accurate. Last year at this time, for example, the Fed predicted it would raise rates four times in 2016. It turns out it's raising them just once.

 

Wednesday's rate increase should have little effect on mortgages or auto and student loans. The Fed doesn't directly affect those rates, at least not in the short run. But rates on some other loans — notably credit cards, home equity loans and adjustable-rate mortgages — will likely rise soon, though only modestly. Those rates are based on benchmarks like banks' prime rate, which moves in tandem with the Fed's key rate.

 

After the Fed's announcement, several major banks announced that they were raising their prime rate from 3.50 percent to 3.75 percent.

 

"This single quarter-point move in interest rates will go largely unnoticed at the household level, but coupled with last year's hike, the cumulative effect could mount quickly if the Fed quickens the pace of rate hikes in 2017," said Greg McBride, Bankrate.com's chief financial analyst.

 

Mortgage rates have been surging since Trump's presidential victory last month on expectations that his economic program would accelerate economic growth and inflation.

 

Stock investors appeared disappointed by the Fed's forecast of three rate increases in 2017. The Dow Jones industrial average closed down about 118 points — 0.6 percent — a sign that stock investors are pricing in additional Fed rate hikes. The yield on the 10-year Treasury rose to 2.57 percent from 2.47 percent

 

Yellen attributed the Fed's higher number of estimated rate hikes for 2017 to a lower unemployment rate and possibly some changes in federal budget policy beginning next year. But she emphasized that any changes to the Fed's projections were "modest."

 

She said Fed officials, during their meeting, discussed Trump's economic plans as well as the surge in stock prices, bond yields and the dollar that's followed his election. She said they reached no conclusions.

 

"We are operating under a cloud of uncertainty at the moment, and we have time to wait and to see what changes occur and to factor those into our decision-making," she said.

 

In response to a question, Yellen said she plans to serve out her four-year term, which ends in February 2018. Most analysts don't expect her to remain after that.

 

The Fed's latest projections have the unemployment rate dipping to 4.5 percent by the end of 2017 and remaining at that level in 2018. It foresees economic growth reaching 1.9 percent this year and 2.1 percent in 2017, slightly more optimistic than it projected in September.

 

The central bank kept its long-term estimate for economic growth at 1.8 percent, far below the 4 percent pace that Trump has said he can achieve with his economic program.

 

Overall, the Fed's policy statement showed only modest changes in wording from the previous meeting. It did note that inflation expectations "have moved up considerably but still are low."

___

AP Business Writers Christopher S. Rugaber in Washington and Ken Sweet in New York contributed to this report.

 

-- © Associated Press 2016-12-15

[wonder6281]

Brace for impact. 

[bark]

2 hours ago, wonder6281 said:

Brace for impact. 

 

2 hours ago, wonder6281 said:

Brace for impact. 

Why ? Trump is here. Up, Up, and away ...........

[lannarebirth]

Never has so little been anticipated by so many for so long.

[ExpatOilWorker]

3 additional interest hikes i 2017 is a bit of a surprise. It will be harder and harder for certain European countries to keep near zero or even negative interest rate, if they want a currency of any reasonable value. 

The could be the beginning of a new era. 

[ilostmypassword]

25 minutes ago, bark said:

 

Why ? Trump is here. Up, Up, and away ...........

Right up there with Mary Poppins!

[williamgeorgeallen]

system of artificial low interest rates and the resulting asset bubbles is not good for the people. now the american government is having trouble borrowing money to fund itself so is having to raise rates to try to get people to buy their bonds. not for the good of the people but the good of itself.

[craigt3365]

2 minutes ago, williamgeorgeallen said:

system of artificial low interest rates and the resulting asset bubbles is not good for the people. now the american government is having trouble borrowing money to fund itself so is having to raise rates to try to get people to buy their bonds. not for the good of the people but the good of itself.

The US government is having problems borrowing money?  They just print it! LOL  You obviously have no idea why interests rates were raised.

[elgordo38]

5 hours ago, webfact said:

James Marple, senior economist at TDBank, said the Fed's forecast of three rate increases next year, up from two, was the "only real surprise" Wednesday.

Janet blowing smoke up her patootie. She was painted into a corner on this last raise. She talks of 3 raises next year and 3 to 4% by 2019.  Heck that would surely seal the fate of the USA debt coffin. If the carrying rates on US debt multiplied 4-6 times the present rate yea old ship USA would head to the bottom of the debt ocean. The dollar would triple in value while other currencies would continue to debase and US corporations abroad would go bankrupt while being paid in local debased currencies. It the same old same old same old Fed hype that is followed closer than the Bible. People just cannot see the Fed for the conman they are. Incredible. 

[ilostmypassword]

12 minutes ago, williamgeorgeallen said:

system of artificial low interest rates and the resulting asset bubbles is not good for the people. now the american government is having trouble borrowing money to fund itself so is having to raise rates to try to get people to buy their bonds. not for the good of the people but the good of itself.

First of all, if the rates were artificially low, how is it that the Feds had no problem selling T-bills at that rate? And still has no problem. In fact, a much better argument is that rates are now artificially high but that the fed is doing it to discourage inflation. Personally, I think their fear of inflation is way overblown. It's still very low and  workers' pay is just starting in the last year to show a genuine increase above the rate of inflation.  

[ilostmypassword]

2 minutes ago, elgordo38 said:

Janet blowing smoke up her patootie. She was painted into a corner on this last raise. She talks of 3 raises next year and 3 to 4% by 2019.  Heck that would surely seal the fate of the USA debt coffin. If the carrying rates on US debt multiplied 4-6 times the present rate yea old ship USA would head to the bottom of the debt ocean. The dollar would triple in value while other currencies would continue to debase and US corporations abroad would go bankrupt while being paid in local debased currencies. It the same old same old same old Fed hype that is followed closer than the Bible. People just cannot see the Fed for the conman they are. Incredible. 

I agree that the rate increases are unwarranted. Except for the fact that if Congress approves Trump's tax and spending plans, deficits will skyrocket.  But as for divisions of US companies abroad going bankrupt, that's doubtful.  They are doing business in that currency.  So their expenses will be down as well as their income.

[elgordo38]

20 minutes ago, ilostmypassword said:

I agree that the rate increases are unwarranted. Except for the fact that if Congress approves Trump's tax and spending plans, deficits will skyrocket.  But as for divisions of US companies abroad going bankrupt, that's doubtful.  They are doing business in that currency.  So their expenses will be down as well as their income.

Yes your right I can get carried away at times. If they try to repatriate it to the USA thats when the poopie hits the fan. 

[lannarebirth]

1 hour ago, williamgeorgeallen said:

system of artificial low interest rates and the resulting asset bubbles is not good for the people. now the american government is having trouble borrowing money to fund itself so is having to raise rates to try to get people to buy their bonds. not for the good of the people but the good of itself.

 

Bonds trade in an open market and rates are set by the marketplace. Fed Funds are overnight interbank borrowing rates.

[ilostmypassword]

1 minute ago, lannarebirth said:

 

Bonds trade in an open market and rates are set by the marketplace. Fed Funds are overnight interbank borrowing rates.

The interest rate for T bonds is initially set by the Treasury Dept. Once they are bought then they can be traded on the open market like any other bond.

[theguyfromanotherforum]

3 additional interest hikes i 2017 is a bit of a surprise. It will be harder and harder for certain European countries to keep near zero or even negative interest rate, if they want a currency of any reasonable value. 
The could be the beginning of a new era. 

Never gonna happen. US is done raising rates for another 5 years. Then again, maybe they will to mess with Trump. The economy will crash.

[lannarebirth]

Yes, but they are set at the current market price +/- a very tiny fraction. ^^ There is also an auction process which will not deviate substantially in yield from similar Treasuries already in the marketplace.

Edited December 15, 2016 by lannarebirth

[lannarebirth]

8 minutes ago, theguyfromanotherforum said:

 

Never gonna happen. US is done raising rates for another 5 years. Then again, maybe they will to mess with Trump. The economy will crash.

 

 

Bond rates have already gone up appreciably. The FED is the tail. The Bond market is the dog.

[ilostmypassword]

13 minutes ago, theguyfromanotherforum said:

 

Never gonna happen. US is done raising rates for another 5 years. Then again, maybe they will to mess with Trump. The economy will crash.

 

If Trump's tax and spending plans are realized,  then inflation should rise and bonds will and the fed rate will continue to go up in price. And there's an excellent chance this will happen. Trump is inheriting a much improved and improving economy so he should have a fair amount of time to disproportionately enrich the wealthy before the economy declines again.

[mania]

1 minute ago, ilostmypassword said:

Trump is inheriting a much improved and improving economy

 

Trump is inheriting a can kicked so far down the road no zip code exists

[ilostmypassword]

1 minute ago, mania said:

 

Trump is inheriting a can kicked so far down the road no zip code exists

Do you mean an economy that is doing just about the best of any OECD nation?

[lannarebirth]

6 minutes ago, ilostmypassword said:

If Trump's tax and spending plans are realized,  then inflation should rise and bonds will and the fed rate will continue to go up in price. And there's an excellent chance this will happen. Trump is inheriting a much improved and improving economy so he should have a fair amount of time to disproportionately enrich the wealthy before the economy declines again.

 

 

The last three expansions leading to recessions average about 7.5 years.  We're somewhere around that now. A recession could come anytime.

[ilostmypassword]

26 minutes ago, lannarebirth said:

 

 

The last three expansions leading to recessions average about 7.5 years.  We're somewhere around that now. A recession could come anytime.

Predictions based on periodicity are ill-founded. There aren't any signs that the economy is becoming overheated or anything else substantive I can see that signals the start of a downturn in the business cycle. Inflation is still very very low.

[craigt3365]

1 hour ago, theguyfromanotherforum said:

 

Never gonna happen. US is done raising rates for another 5 years. Then again, maybe they will to mess with Trump. The economy will crash.

Anybody who can correctly guess what the fed will be doing would be a billionaire.  You can pretty much guarantee there will be at least 1 rate hike in the next 5 years. LOL

 

I remember back in 2008, dozens here were predicting the crash of the US economy and the USD.  They're eating crow now...the US isn't doing great, but not doing bad.  Hanging in there.

[williamgeorgeallen]

4 hours ago, craigt3365 said:

The US government is having problems borrowing money?  They just print it! LOL  You obviously have no idea why interests rates were raised.

it is obviously a complicated matter. if america can just print money why did they borrow 20 trillion of other countries?

[ilostmypassword]

4 minutes ago, williamgeorgeallen said:

america is pucked, really really pucked. another big crash is just a matter of time. america borrows trillions every year to pay the interest on its 20 trillion dollar loan. a loan which doubled in the last 8 years. a loan greater than its GDP. ontop of this there are people over borrowing to invest/speculate fueling bubbles. personal debt is growing so fast it may out pace the national debt. how can anyone think america is doing well?

Actually your statement about the the growth of personal debt - or, as it's officially called - household debt is wrong. Actually, it's been declining since 2008.

https://fred.stlouisfed.org/series/HDTGPDUSQ163N

And your statement on interest is absolutely nuts.  "America borrows trillions to pay the interest on its 20 trillion debt"  Interest rates have been hovering just slightly above zero. How does that add up to trillions in interest payments yearly? 

Remedial math, anyone?

[Grubster]

5 hours ago, ilostmypassword said:

I agree that the rate increases are unwarranted. Except for the fact that if Congress approves Trump's tax and spending plans, deficits will skyrocket.  But as for divisions of US companies abroad going bankrupt, that's doubtful.  They are doing business in that currency.  So their expenses will be down as well as their income.

No they sell most of their goods in the US for US dollars and will be paying even less to their teenage workers abroad.

[ilostmypassword]

10 minutes ago, Grubster said:

No they sell most of their goods in the US for US dollars and will be paying even less to their teenage workers abroad.

Fair enough except that don't have to find teenagers to pay badly.

[CaptHaddock]

4 hours ago, lannarebirth said:

 

Bonds trade in an open market and rates are set by the marketplace. Fed Funds are overnight interbank borrowing rates.

 

The Fed Open Market Committee sets the rate of Treasury Bills  by buying and selling T-bills in the market.   The Fed does not similarly set the rates of Treasury Notes and Bonds.

[Berkshire]

1 hour ago, williamgeorgeallen said:

it is obviously a complicated matter. if america can just print money why did they borrow 20 trillion of other countries?

 

"Other countries" only own around 33% of US debt.  Americans own the rest.