November 2015 - The Month In Charts: The Fed Finally Drops The Shoe | Lipper Alpha Insight

November 2015 – The Month In Charts: The Fed Finally Drops The Shoe

by Vincent Flasseur.

The Federal Reserve on Dec. 16 decided the U.S. economy was strong enough to stand an interest rate increase for the first time since the 2007-2009 Great Recession, ending a lengthy debate about whether the economy was strong enough to withstand higher borrowing costs.

The U.S. central bank’s policy-setting committee raised the range of its benchmark interest rate by a quarter of a percentage point to between 0.25 percent and 0.50 percent, Reuters reported.

“With the economy performing well and expected to continue to do so, the committee judges that a modest increase in the federal funds rate is appropriate,” Fed Chair Janet Yellen said.

The Fed’s policy statement noted the “considerable improvement” in the U.S. labor market, where the unemployment rate has fallen to 5 percent, and said policymakers are “reasonably confident” inflation will rise over the medium term to the Fed’s 2 percent objective.

U.S. stocks rallied on the news, in part because the Fed made clear it would proceed slowly with further tightening. Yields on U.S. Treasuries rose, while the dollar was largely unchanged against a basket of currencies. Oil prices fell sharply before paring losses.

The central bank made clear the rate hike was a tentative beginning to a “gradual” tightening cycle, and that in deciding its next move it would put a premium on monitoring inflation, which remains mired below target.

Yellen added that policymakers were hoping for a slow rise in rates but one that will keep the Fed ahead of the curve as the economic recovery continues.

New economic projections from Fed policymakers were largely unchanged from September, with unemployment anticipated to fall to 4.7 percent next year and economic growth hitting 2.4 percent.

The Fed statement and its promise of a gradual path represented a compromise between policymakers who have been ready to raise rates for months and those who feel the economy is still at risk from weak inflation and slow global growth.

Yellen said the Fed had no desire to curb consumers from spending or businesses from investing. She emphasized that interest rates remained low even after the rate hike, near levels economists regard as appropriate for a recession.