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Hot Topic NBR Focus: GMO
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US Fed hikes interest rates for first time in almost a decade

Fed lifts rates to 0.25-0.50%.

Jason Walls
Thu, 17 Dec 2015

After months of speculation, the US Federal Reserve has hiked interest rates from rock bottom levels.

Fed chairwoman Janet Yellen announced this morning the Fed funds rate (interest rates) will be lifted from its current 0-0.25% level, to 0.25-0.50%.

Interest rates in the US have been at near zero since late 2008. 

Ms Yellen says the US economy has been performing well enough for rates to be raised.

"Information received since the Federal Open Market Committee met in October suggests economic activity has been expanding at a moderate pace," she says.

The US central bank also raised its projection for economic growth next year slightly, from 2.3% to 2.4%.

Ms Yellen is happy with the recent level of growth in the US jobs market.

"A range of recent labor market indicators, including ongoing job gains and declining unemployment, shows further improvement and confirms that under-utilisation of labor resources has diminished appreciably since early this year," she says.

In October almost 300,000 new jobs were added, followed by a further 210,000 in November. At 5%, US unemployment is at its lowest level in more than half a decade.

But she warned that a persistently low level of inflation is still an issue for the US economy.

This is despite the US Labor Department revealing earlier this week the consumer price index (CPI) increased 2% in November. 

Ms Yellen indicated more interest rate hikes were on the way.

"This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments."

But she says further increases will be gradual.

She says the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. 

'However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data," she says.

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Jason Walls
Thu, 17 Dec 2015
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US Fed hikes interest rates for first time in almost a decade