Washington
The US Federal Reserve announced Wednesday its first interest rate increase in more than nine years, in a landmark move signaling the world's second largest economy has finally moved beyond the 2008 crisis.
The Fed raised its benchmark federal funds rate, locked near zero since the financial crisis, by a quarter point to 0.25-0.50 percent, saying the world's biggest economy is growing solidly and should accelerate next year to a respectable 2.4 percent pace.
The move, which has repercussions across the global financial system, also imprinted Chairperson Janet Yellen's personal stamp on US monetary policy after nearly two years as she spent plotting to reverse course from the easy-money stance bequeathed by predecessor Ben Bernanke.
"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."
The move was widely expected and marked the end of an era in which the Fed pumped trillions of cheap dollars into the devastated US economy to fuel what turned out to be an unexpectedly long rebound.
It kicks off a likely series of rate increases which the Federal Open Market Committee, the Fed's policy board, promised would be "gradual" and follow the pace of the economy.
FOMC projections showed they expect the rate will rise to about 1.4 percent by the end of 2016, suggesting four more increases over the coming 12 months.
- Markets react positively -
The announcement, and the Fed's positive outlook for US growth, pushed Asian and US stocks higher, with the S&P 500 finishing with a 1.5 percent gain, most of which came after the Fed's announcement.
Stocks in Australia, Tokyo and Hong Kong were all up, and the dollar rose slightly against the euro.
The rate increase came amid some criticism from prominent economists that the economy was still vulnerable to slower global growth and that there was no compelling reason -- like surging inflation and a tight jobs market -- to justify it.
But FOMC support for the decision was unanimous. The committee pointed to "considerable" improvement in the labor market and said it is "reasonably confident" in inflation rising over the medium term, to its two percent objective.
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.
Oil slides lower
World oil prices sank further Thursday after rising US stockpiles reinforced fears of a prolonged global glut, while a stronger dollar added downward pressure.
US benchmark West Texas Intermediate for delivery in January was down 33 cents at $35.19 a barrel.
Brent North Sea crude for February delivery stood at $37.26, down 13 cents compared with Wednesday's close.
Crude futures in New York slid Wednesday to new multi-year lows after US data showed a big increase in petroleum stockpiles.
A report from the US Department of Energy showed that crude supplies rose 4.8 million barrels in the week ending December 11.
Prices have tumbled since December 4, when the OPEC oil exporters' group refused to set a production limit despite a supply glut, anaemic demand and a slowing global economy.
"US crude production shows no signs of faltering despite the low crude oil prices. We continue to wait patiently for production to drop. However, it is taking painfully long," said analyst Daniel Ang at Phillip Futures, in reference to the US stockpile figures.
The US Federal Reserve's widely expected decision also weighed, with the dollar ticking up and making oil more expensive to customers using weaker currencies.
However, the US central bank's chief Janet Yellen said she had been surprised by "the further downward movement in oil prices" and expected them to stabilise before edging up.
QUOTES:
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,
We have to consider how the Fed is going to raise its rates going forward. India is very well-prepared. We have a fortressed balance sheet, sound fiscal management, and strong GDP growth. And therefore, we continue to be a bright spot in the global economy,
India appears less exposed than other similarly-rated emerging market sovereigns, given its small current account deficit and relatively low external debt as a share of nominal GDP. The uncertainty over the transition back to monetary normalcy could still provoke some volatility in capital flows into emerging markets... India appears better-positioned toweather these challenges,
India is not immune to potential general emerging market jitters related to the Fed lift-off, but it is better placed than many of its peers for a number of reasons. The Reserve Bank's focus during the upcoming monetary policy reviews will increasingly shift to domestic parameters, critical being the growth-inflation rhetoric,
Read more at: http://www.moneycontrol.com/news/economy/india-not-immune-to-fed-rate-hike-jitters-fitch_4619961.html?utm_source=ref_article
