Federal Reserve Increases Interest Rate

15 December 2016 9:13:59 AM

By: DailyForex.com

2016 has been one of the least predictable years in recent memory in political terms with the UK decision to leave the EU, the almost election of a far right president in Austria (in May) and the surprise election of Donald Trump as president in the US. Economically, the Federal Reserve had expected 2016 to see a move towards the normalisation of interest rates from historical lows back in the direction of the long-term average with a planned four 0.25% hikes across the course of the year, but circumstances ended that plan.

It has been highly likely, over the course of the year, that the Fed would increase its interest rate, but at each stage expectations were dampened and the decision deferred. A rate hike at the Fed’s last meeting of 2016 was a racing certainty and they didn’t disappoint with an increase of 0.25% taking interest rates up into the band from 0.5 to 0.75%. Interest rates in the US are still only a fraction of the long-term average which is 5.83% (new mortgage holders take note!) with a range from 0.25% (as recently as last year) to an eye-watering 20% in 1980.

Comments from the Fed suggest that interest rates will probably be increased three times over the course of 2017, possibly taking rates up to 1.4%. The incoming Trump administration is promising a mixture of tax cuts, public spending increases and deregulation, although it remains to be seen to what extent his own party in Congress and the Senate will support these initiatives.

Forex market reaction to the news was predictably swift as the Dollar rose against other currencies. On Tuesday, the Dollar closed at € 1.0638; ¥ 115.3 and £1.2683, currently, those values stand at € 1.0486; ¥ 117.7 and £1.2513. In part, the valuations stem from Bullish remarks from the Federal Reserve Chairman, Janet Yellen, following the announcement: “It’s important for households and businesses to understand that my colleagues and I have judged the course of the US economy to be strong. We have a strong labour market and we have a resilient economy.”

Dr. Mike Campbell is a British scientist and freelance writer. Mike got his doctorate in Ghent, Belgium and has worked in Belgium, France, Monaco and Austria since leaving the UK. As a writer, he specialises in business, science, medicine and environmental subjects.

DailyForex Newsletter
0 User Reviews

Registration is required to ensure the security of our users. Login via Facebook to share your comment with your friends, or register for DailyForex to post comments quickly and safely whenever you have something to say.

Log in | Create a DailyForex.com Account Now