28 October 2016
The Fed's decision reflects strength in the US economy, Janet Yellen says. Photo: AFP
The Fed's decision reflects strength in the US economy, Janet Yellen says. Photo: AFP

Fed ends zero-rate era, signals gradual tightening

The US Federal Reserve has raised interest rates for the first time in almost a decade.

Fed chairwoman Janet Yellen said the widely telegraphed move will be followed by “gradual” tightening as officials watch for evidence of higher inflation, Bloomberg reported.

The Federal Open Market Committee unanimously voted Wednesday to set the new target range for the federal funds rate at 0.25-0.5 percent, up from 0-0.25 percent.

Policymakers separately forecast an appropriate rate of 1.375 percent at the end of 2016, implying four quarter-point increases in the target range next year, based on the median number from 17 officials.

“The economic recovery has clearly come a long way, although it is not yet complete,” Yellen told a press conference following the conclusion of the FOMC’s two-day meeting in Washington.

“The committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen.”

The increase draws to a close an unprecedented period of record-low rates that were part of extraordinary Fed policies designed to stimulate the US economy in the wake of the most devastating financial crisis since the Great Depression.

The FOMC lowered its benchmark rate to near zero in December 2008, three months after the collapse of investment bank Lehman Brothers Holdings Inc. and 10 months before unemployment in the US peaked at 10 percent.

The Standard & Poor’s 500 Index of US stocks jumped 1.5 percent to 2,073.07 in New York, rising for three consecutive days for the first time since October while erasing losses for the year.

The US dollar fluctuated against the euro after the decision, falling as much as 0.7 percent. It later recouped losses, climbing 0.3 percent to US$1.0902 per euro at 4:14 p.m. in New York.

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