The Federal Reserve pressed to calm anxiety about the prospects for a sharp uplift in US interest rates as it raised short-term rates for the first time in almost a decade.
The American central bank stressed that only “gradual” interest rate increases were in play as it ushered in moves to start unwinding extraordinary efforts to spur the US economy in the wake of the global crash.
The Federal Open Market Committee’s decision lift its targeted rate range to 0.25 per cent to 0.50 per cent from the current zero to 0.25 per cent range was widely anticipated in financial markets.
At the same time, the Fed emphasised a sense of caution in this first tentative rise since 2006 .
“The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run,” it said in a statement.
It went on to say the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
The development follows unambiguous signals from Fed chairman Janet Yellen that her confidence in the US inflation outlook was “bolstered” by strong job-creation data in the world’s largest economy.
As it raised rates this evening, the committee cited considerable improvement in US labour market conditions this year and said it was reasonably confident that inflation will rise over the medium term to its 2 per cent objective.
The Fed’s move signals that its policy-makers believe the recovery in the US is strong enough now to withstand gradual steps to reverse ultra-loose policies which have kept interest rates close to zero for seven years.
However, the moves comes despite anxiety that the global economy is in too weak a state for the Fed to embark alone with measures aimed an eventual return to regular monetary policy.
In its statement, the Fed said economic activity in the US has been expanding at a moderate pace and will continue to do so.
“Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further; however, net exports have been soft,” it said.
“A range of recent labor market indicators, including ongoing job gains and declining unemployment, shows further improvement and confirms that underutilization of labor resources has diminished appreciably since early this year.”
The US central bank lowered the federal funds rate to its present range in December 2008, months after global shockwaves from the Lehman bankruptcy led to the State guarantee on the liabilities of Ireland’s banks.
Global stock markets advanced modestly and the dollar held steady in advance of the Fed decision, made public at 7pm Irish time.
US stocks held their gains after the increase and the dollar fluctuated. The Standard and Poor’s 500 Index was up 0.6 per cent in the minutes after the Fed statement.
The pan-European FTSEurofirst 300 index closed up 0.3 percent after a 2.9 per cent rally in the prior session. In Dublin the Iseq eased by 0.04 per cent to finish at 6,653.49.
