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US Federal Reserve raises interest rates for first time in 9 years.


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Things starting to look up again?

 

 

The US Federal Reserve has delivered on expectations by raising interest rates for the first time in almost a decade.

 

The new target for the main US benchmark rate has edged up to between 0.25 per cent and 0.5 per cent — up from the crisis level of zero to 0.25 per cent.

 

The central bank signalled future rate rises would be "gradual", in line with previous guidance and today's forecast implies four gradual increases over the next year, taking the main rate to 1.37 per cent.

 

The Fed's confidence America's economic emergency is over was bolstered by a recovery in the US jobs market and signs inflation would gradually move higher from the current low level.

 

"The committee judges that there has been considerable improvement in labour market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 per cent objective," the Federal Open Market Committee (FOMC) said in a statement released after a two-day meeting in Washington.

 

"The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.

 

Fed promises to take it slowly

 

 

US Federal Reserve chair Janet Yellen says further rate rises will be 'gradual' and 'prudent'.

"The actual path of the federal funds rate will depend on the economic outlook as informed by incoming data."

 

The decision is the culmination of a seven-year period of near-zero level rates to stimulate the US economy in the wake of the 2008 Lehman Brothers collapse which pushed the US into its worst downturn since the Great Depression.

 

The crisis was sparked by the subprime mortgage meltdown, which saw the US housing market crash.

 

The US government was forced to step in with a controversial $US700 billion rescue package and the Fed's quantitative easing program — or money printing — which peaked at $US85 billion a month wound down a year ago.

 

Positive market response to rate rise

 

Financial markets and analysts gave the Fed a tick of approval for today's rate decision and accompanying statement, which held no big surprises.

 

The blue chip Dow Jones Industrial Average rose 1.3 per cent and the broader S&P 500 was up 1.5 per cent by the close of trade.

 

Showing the degree of expectation ahead of the decision, the US dollar actually weakened a little shortly after the announcement, before bouncing back - rate rises should generally push a currency higher, unless they have already been factored into trade.

 

By 8:37am (AEDT) the Australian dollar was worth 72.25 US cents.

 

CommSec economist Savanth Sebastian said the rate rise is a positive event for the US economy and "signals that the crisis is finally over", with unemployment back at a seven-year low of 5.5 per cent.

 

"Over the past year US stock markets had been addicted to cheap money and essentially held the Federal Reserve to ransom every time there was a discussion on the possibility of a lift in US rates," he wrote in a note on the Fed's move.

 

"It is encouraging that now investors have finally accepted and embraced the lift in interest rates from emergency levels."

 


 

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hummm I see 48 to the dollar soon

 

:coffee:   Good for you guys.  Us here with Oz dollar envious. 

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smokey

:coffee:   Good for you guys.  Us here with Oz dollar envious. 

 

I guess its our turn a long time coming ... when the rate went from 50 to 40 we took a over 20% pay cut

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I guess its our turn a long time coming ... when the rate went from 50 to 40 we took a over 20% pay cut

 

You say 20% pay cut, I think of something more like this. 

 

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