The FED (Federal Reserve – U.S. Central Bank) announced in a statement on Wednesday 13 June its decision to raise interest rates and announced plans for further increases.
At the two-day meeting, the Federal Open Market Committee voted in favour of raising the federal fund rate target by 25 basis points from 1.75% to 2%. Probably in the next few hours a lot of banks will react, raising their first credit rate with bank loans, such as credit cards and car loans.
This was the seventh increase since the end of 2015, when the Fed first started to raise interest rates from almost zero. After the financial crisis, it kept credit costs low to encourage businesses and consumers to borrow and spend money and thus develop the economy.
Ten years after the recession, the Fed has made progress towards its objectives. The unemployment rate in May was 3.8%, the lowest since 2000, and inflation was just below the inflation target of 2%.
Greg McBride, the chief financial analyst, said in his report:
“Rising interest rates will start to make losses on borrowers who are already stretched to their limits thanks to limited household budgets. Higher rates and payments will fuel households’ purchasing power without compensating for wage increases.
However, higher rates will help savers to get more interest on their deposits.
The President of the Fed, Jerome Powell, announced at a press conference that he would organise information meetings after each political meeting, rather than quarterly from January 2019. This would improve the communication of the Fed.
The rise in ocean rates may be very important for global currencies, so we can expect significant changes in exchange rates in line with the US dollar.