On Wednesday, the Federal Reserve committee raised its interest rate for the first time in a year and second time in a decade. They signaled that the Fed funds rate could continue to rise the following year, more rapidly than we had expected and it serves as a benchmark for mortgage rates, savings account yields, government borrowing rates, credit-card rates, and so on. The Fed uses the interest rate as a way to accelerate the economic growth.
The increase was modest, and raised by a quarter-point, from as target range of 0.25 percent to 0.5 percent to a range of 0.5 to 0.75 percent. The Fed chairman, Janet Yellen, described the increase as, “A reflection of the Fed officials confidence they have in strengthening the US economy and our judgment is a sign that progress will continue.”
But unlike stock traders and corporate champs, Fed officials aren’t anticipating a massive boost next year 2017 from economic policies implemented by new elected President-Donald Trump. But, if those policies are likely to cause an overheating effect in the U.S economy, then the Fed officials would consider raising interest rates faster than before.
Immediate after the rate hike announcement, a little rise in the markets were noticed, but gone down an hour later, after Janet Yellen concluded a news conference. A sharp slid on the US stock market was recorded. NASDAQ index down by 0.5%, the S&P 500-stock index down by 0.8%, whereas Dow Jones closed down 0.6% respectively.
The central bank released economic projections, which states that the Fed expects 1.9 percent increase in an economy as for 2016, and the projection of 2.1 percent in 2017.
The economic analyst added, “If Trump and Congress consented to increase spending in infrastructure and slash tax rates, the interest rates could be forced to rise than expected.”
Doug Duncan, Fannie Mae chief economist said, “The expected rise in interest rate is uncertain to predict, given the Fed is in wait-and-see mode.”
From the liberal economist’s point of view, the Fed’s decision to raise rates welcomes new criticism for those who want the rates to remain low as possible.
Yellen further said, “I don’t favor economy to boost at such a fast pace and inflation to overshoot its target and that I haven’t recommended running an overheating or high-pressure economy as an experiment.”
Donald Trump has promised to accelerate infrastructure spending, through tax rebates, by $1 trillion and to reduce taxes for corporations and individuals. However, Fed officials aren’t going to change their future forecasts based on what Trump might do, said economists.
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