In December last year, the U.S central bank's policy-setting committee increased the benchmark interest rate by around a quarter of a percentage to between 0.25% and 0.50%. While in a press conference, the chair of the committee, Janet Yellen announced that the U.S economy was performing well and was expected to continue so. Therefore, the rationale behind raised interest rate was an economic recovery that the country had experienced (Howard & Jason, 06). The policy statement noted that there has been a considerable improvement, especially in the labor market and that unemployment had fallen by 5 percent.
The move was a clear indication of a gradual process that would see a slow by a slow hike of the interest rates so long as it was internment with the economic curve. The policy further projected that the unemployment in the country would decrease to 4.7 percent, whereas the economic growth would reach 2.4 percent. Fed's statement and the promise of the grading pattern was a compromise of those policy makers who for a long time wanted to raise the interest rate and those who still felt that the economy was still at risk due to slow global growth and weak inflation.
There were mixed reactions to the actions of the committee with some supporting while others against the move. U.S stocks supported the move in part given that Fed clearly stated that it slowly proceed with tightening (Howard & Jason, 13). Fed further clarified that by hiking the interest rates they were not in any way curbing consumer's expenditure or preventing business people from investing. The chair emphasized that the interest rate was still relatively low, even on the rise, at a level where most economists consider it appropriate for an economic recession.
Fed Chairperson Stanley Fischer when argued that Fed policy remains accommodative meant that Fed policy is important and remains binding in the economy while dealing with Fed issues. He cautioned Fed officials concerning the Fed policies and that they should be able to understand and apply the policies appropriately. He argued that most of the officials had been having a problem when it comes to the Fed issues with that most of them did not have the understanding of how and when to apply the Fed policies (Howard & Jason, 1). Furthermore, Fischer through the statement cautioned that it was too early for the Fed officials to assess the effect of market and its volatility. Through the statement, Fischer said that if the recent financial issues result in a strengthening of financial issues, then there would be a slow growth rate in the global economy. This would, in turn, have an effect on the inflation and growth in the United States. The federal committee through the chairperson said that raising the interest rates would result in an economic improvement.
The U.S has shown considerable strength and through the policy, they would be able to improve the domestic economy and, in turn, have a good relationship with other foreign countries. Fed Pays bank interest rates on the reserves that the banks have deposited and this determines the base at which the bank sets the interest rates to pay its customers. By the end of last year, the bank was expecting to set the rate at 0.50% and it was reached at by the bank after considering several factors that affect the inflation rate in the country.
Work Cited
Howard Schneider & Jason Lange. Fed Raises Interest Rates, Citing Ongoing U.S recovery. Journal (2015)
