Washington, Dec 17 (IANS) For the first time in nearly a decade, America’s central bank, the US Federal Reserve raised its key interest rate on Wednesday from a range of 0 percent to 0.25 percent to a range of 0.25 percent to 0.5 percent.
The move was widely expected. The rate hike though a small one, is seen as a sign of how much the US economy has healed since the 2007-2008 financial crisis.
The central bank believes the US economy is strong now and no longer needs crutches.
The announcement came at the conclusion of the crucial two-day meeting of the policy making federal open market committee’s (FOMC).
“The Committee judges that there has been considerable improvement in labour market conditions this year, and it is reasonably that confident inflation will rise,” the Fed said in its statement.
Stocks rallied with the Dow rising over 100 points after the announcement, CNN reported. Investors were pleased to see that the Fed expects “only gradual increases” in interest rates next year.
The Fed put interest rates near zero during the financial crisis in December 2008 to help stimulate the economy and boost the collapsed housing market.
But the economy is now a lot healthier with unemployment at 5 percent, half of the 10 percent rate it hit in 2009 during the worst of the jobs crisis.
Over 12 million jobs have been added since the recession ended. Wages — which have barely grown during the recovery — have also started to pick up recently.
On Wednesday, the Fed’s committee improved its economic outlook. Compared to its last forecast in September, the Fed raised its expectations for economic growth next year to 2.4 percent from 2.3 percent.
It also lowered its projection for unemployment in 2016 to 4.7 percent from 4.8 percent.
The Fed still has low expectations for inflation — a key measure when it decides to raise rates again.
The Fed’s target for inflation is 2 percent, but right now its close to zero. The Fed sees inflation inching up in the years to come, but not hitting 2 percent until 2018.
Known as “liftoff,” the Fed’s action is expected to be the first of more rate increases that will probably come in 2016, CNN said.
The last rate hike was in June 2006 culminating a steady series of rate hikes that began two years earlier.
Janet Yellen, the first woman Fed Chair in the bank’s 112-year history, would explain the bank’s historic decision at a press conference at 2:30 p.m. (1 a.m. India time)
(Arun Kumar can be contacted at email@example.com)