US Fed Raises Interest Rate for First Time in Nearly a Decade. We have confidence in Economy, Say Fed Boss, Janet Yellen

* Janet Yellen

by Benson Agoha | Economy

US FEDERAL RESERVE BANK Raises Rates after it sees risks of the outlook as balanced and predicts that an already low inflation rate will continue to be low.

The much anticipated hike in rates - after nearly ten years of near zero rate took place Wednesday, with Janet Yellen (left), the boss of the US Federal Reserve Bank announcing a hike of between 0.25% - 0.5%.

The Fed Reserve's Open Market Committee, making the end of a seven year period during which the US rates was kept at near zero, to help the country get out of the financial crises. 

"This action marks the end of an extraordinary seven-year period during which the federal funds rate was held near zero to support the recovery of the economy from the worst financial crisis and recession since the Great Depression," Yellen said.

"It also recognizes the considerable progress that has been made toward restoring jobs, raising incomes, and easing the economic hardship of millions of Americans."

* Forex traders monitor the speech as they try to calculate how it
will change market conditions. (Credit: via Industry Week)

But speculators on this side of the pond are not expecting a similar move by the Bank of England because of peculiar reasons.

In any case, the US move still keeps it's rates below that applicable in England, which have been at 0.5% for the past few years. 

But the US move has repercussions across the global financial system becomes the first rate imposed by the incumbent boss of the fed reserve who has been on the job for nearly two years. 

The move, authorized by The Fed Reserve's Open Market Committee, kicks off a likely series of rate increases which the committee, Fed's policy board, promised would be "gradual" and follow the pace of the economy.

"We believe we have seen substantial improvement in labor market conditions," Yellen said. She said she hoped Americans will take the Fed's decision as one that signals that "job market prospects will be good."

How will this affect the ordinary american when organisations begin to adjust and readjust prices in response to market conditions as a result of the rate hike?

* Graph shows a stronger expansion. (Credit: Blumsberg).

"The first thing that Americans should realize is that the Fed's decision today reflects our confidence in the U.S. economy," Yellen told a press conference.

"While things may be uneven across regions of the country, and different industrial sectors, we see an economy that is on a path of sustainable improvement."

Yellen predicted the challenges of ultra-low inflation and continued slack in the labor market would both diminish significantly over the coming year.

"What we would like to avoid is a situation where we have waited so long that we are forced to tighten policy abruptly, which risks aborting what I would like to see as a very long-running and sustainable expansion," she explained.