US raises interest rates for the first time this year

The US Federal Reserve (Fed) has just decided to raise short-term interest rates by 0.25% and forecasts that it may increase them 2-3 more times in 2017, showing confidence in the US economic outlook.

The US Federal Reserve (Fed) has just decided to raise short-term interest rates. Illustration photo: Reuters.

Accordingly, short-term US interest rates are currently around 0.5% - 0.75%. The increase will affect millions of Americans, including home buyers, savers and investors.

This is only the second time the agency has raised interest rates in the past decade. The first time was in December 2015. "Growth has accelerated since the second half of the year. We expect the economy to continue to perform well," Fed Chair Janet Yellen said in a press conference after the policy meeting.

In 2008, the Fed cut interest rates to zero to deal with the financial crisis, and kept them there until the end of last year. The rate hikes signaled that the US economy no longer needed the Fed's support. Homebuyers and businesses could afford to pay more on their loans. The US has added jobs for 74 straight months. The unemployment rate has fallen to 4.6% - the lowest since 2007. And GDP has grown for seven years, albeit at a slower pace.

Vincent Reinhart, chief economist at investment firm Standish, said the Fed's rate hike "should be viewed as good news" because it means the Fed thinks the economy is strong enough. The agency also signaled a faster pace of rate hikes next year. Most Fed officials now forecast two or three more rate hikes in 2017.

US stocks lost ground on the news. The S&P 500 closed down 0.8%, while the Dow Jones and Nasdaq fell 0.6% and 0.5%, respectively.

During her press conference, Ms. Yellen also hinted that the Fed's role in the economy will begin to decline. And the government will take over the job of stimulating growth.

Some economists believe the Fed will have to raise interest rates more often if Donald Trump increases infrastructure spending because it will boost demand for many goods, thereby accelerating inflation. To deal with inflation, the Fed will have to raise interest rates.

The Fed forecasts US growth of 1.9% next year and 2.1% in 2018. Both rates are higher than forecasts in September.

According to VNE