Why some say Fed interest rate hikes are premature
Mar 18 2017 by Bridget Leonard
Not everyone was pleased with the decision to hike rates, saying the economy is not as strong as the Fed makes it out to be and that while employment is stable, wages have been stagnant.
The increase takes the interest rate up to a range from 0.75% to 1%.
We believe the Fed is reluctant to send the message that it wants to raise interest rates quicker or reduce the size of its balance sheet for several reasons. However, it's important to keep perspective - many previous generations of homebuyers purchased homes at significantly higher interest rates than what we enjoy today.
Rising US rates have global repercussions especially for developing countries most vulnerable to higher dollar borrowing costs.
"The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the long run", the committee said. For this reason, analysts are expecting further incremental upticks over the course of the year.
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Heller said: "We have very low unemployment rate of 4.7 percent, we have inflation roughly at 2 percent, so rates should be normal now".
On the impact on India's exports, Ficci said the rate hike corroborates better growth prospects of the USA economy, which in turn will have positive implications on global trade, including exports from India.
If Mr. Trump is watching and considering what the Fed is doing, he might also be coming to understand the role of what is, in principle, an independent US central bank.
Thus the market is relatively indifferent as to whether the Fed raises rates or not.
The Fed held its benchmark short-term interest rate near zero from the end of 2008 through most of 2015, before beginning a tightening cycle in December 2015.
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Last year, the central bank flagged its plans to raise short-term interest rates more aggressively throughout 2017. But, a strong correlation is seen after a week of US Fed meeting, Reuters said in a report.
Kinnear said with the unemployment rate as low as it is, inflation at two percent. "In the near-term horizon of the next year or two, the rate increases are helpful to the health of the banking industry".
While the news sounds like more money out-of-pocket for some who will pay higher interest rates for loans, others actually say it's good news for the USA economy.
But unlike some of those rosy views, Yellen's optimism isn't grounded in expectations for President Trump's promises to enact a "pro-growth" agenda of tax cuts, deregulation and infrastructure spending.
The market expects the next hike to come in June and another in December.
According to the Board of Governors of the Federal Reserve System, only one official voted against the action - Neel Kashkari, who preferred to maintain the existing target range for the federal funds during the March meeting.