AM: The Fed raises interest rate by a quarter point
J.P. Morgan Chase & Co., Wells Fargo & Co., Bank of America Corp. and a number of other banks all announced increases to the so-called prime rate, a key reference rate for a variety of loans including credit-card debt. That included our dollar which has already fallen 15 per cent against the US dollar this year.
Trudeau added that a reinvigorated USA economy means more opportunities for Canadian companies selling their goods south of the border. Explaining the Fed’s historic decision, Janet Yellen, the first woman Fed Chair in the bank’s 112-year history, told a press conference that Fed chose to move now because it felt it was on course to hit its goals.
The rise is significant for those in the USA, but is also likely to have an impact in countries around the world, including the UK. The metal had rallied before the Fed decision on Wednesday and managed to hold on to most gains post the central bank statement, ending the day up 1.2 per cent.
The Fed doesn’t change mortgage rates for consumers directly-it can only control the federal funds rate, also known as the short-term interest rate, at which banks can borrow money. But the still very-low rate is not expected to result in consumers or businesses clamping down on borrowing.
“Markets are going into the announcement expecting a rate hike but, on the surface at least, relatively relaxed that it is priced in”, said Kit Juckes, a strategist with France’s Societe Generale in London.
Logan Wright, director of China market research for Rhodium Group, says Beijing’s need to control capital outflows would hamper the ability of policymakers to stimulate China’s slowing economy by cutting interest rates. The modest move increased the range for the funds rate from between zero and 0.25 percent to a range of 0.25 percent to 0.5 percent.
First, it signals that the economy is strong enough to handle the increase.
For months, Yellen and other Fed officials have said they expected any rate hikes to be small and gradual. The Fed’s benchmark rate does not directly affect them. Investors were pleased to see that the Fed expects “only gradual increases” in interest rates next year.
The reaction from major USA banks was prompt.
Japan’s Nikkei 225 jumped 2.1 percent and South Korea’s Kospi climbed 1.9 percent. However, the rise in the United States dollar will have the opposite effect because it improves the competitiveness of imports into the USA market.
