WASHINGTON, December 16. /Corr. Andrew Shitov/. Federal reserve system (FRS) that perform the functions of the Central Bank of the country, has decided to raise the benchmark interest rate by 25 b.p. – to 0.25-0.5% 0-0,25% per annum. This is stated in the message of the Federal Committee on open market operations (FOMC) meeting on December 15-16.
“The Committee considers that labour market in the current year there has been a significant improvement was noted in the statement following the meeting, adopted unanimously. And he is sufficiently confident that inflation in the medium term will rise to the target of 2%”.
Basic discount rate the fed last raised in June 2006. From December 2008 to date it has remained almost at zero – 0-0,25%.
The Outlook for further rate increase and GDP growth
According to the median forecasts of the fed base interest rate will be increased to 1.4% in 2016 and 3.5% in the long term.
In addition, the fed has maintained the forecasts for U.S. GDP growth in 2015 at 2.1% and in 2016 at 2.4%. The inflation forecasts that the fed will remain below 2% until 2018.
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Economists surveyed by the Financial Times, suggest that next year the fed may take another two to four solutions on a gradual increase in rates.
The steering Committee itself, the fed confirmed that the increase will be “gradual” and that when making decisions, the management of the banking system primarily to monitor changes in inflation.
“In light of the fact that until inflation reaches 2%, the Committee will closely monitor actual and expected progress towards the target of inflation, – the document says. – The Committee expects that economic conditions will change in a way that will only give reason for the gradual increase of rates of Federal funding”.
The expectations of experts were justified
Previously published under the Bloomberg consensus forecast, 102 of the 105 surveyed economists expecting a rate hike at the December meeting, the fed 0.25 and 0.5%.
“The expected rate hike by the fed in December, should be, is the most publicized in history. It will not be a surprise to the market,” says economist Bank of America Merrill Lynch’s Michael Hansen.
Market expectations were based, including, and on the positive results of low policy rates in the United States. In December 2008, the us regulator has lowered the rate almost to zero and stores it in the range of 0-0. 25% for seven years.
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Cheap money helped the U.S. market to significantly recover from the global economic crisis, which creates conditions for increasing interest rates. The unemployment rate fell from 10% in 2009 to 5% in November this year, while GDP in the third quarter of 2015 increased in annual terms at 2.1% compared with a decline of 0.5% in the third quarter of 2008.
In addition, the head of the fed Janet Yellen had to prepare financial markets for growth rates by repeated allegations that the U.S. Federal reserve discussing the possibility of tightening monetary policy at each of the meetings. And during the keynote address at the Economic club in Washington on 2 December, Yellen even stated that it was too long maintain the interest rates at the current level could undermine stability in the financial markets and even to plunge the U.S. into recession.
Financial markets have been preparing for this for several years
Rhetoric from fed officials in favor of increasing the basic interest rate in December, positive macroeconomic statistics and the almost unanimous consensus around the world in favor of raising rates – all of this suggests that the global financial market ready for the first in nearly 10 years the increase in the cost of dollar-denominated loans, and, respectively, and the dollar.
While financial markets have been preparing for this event for several years. With the end of 2013 the us dollar index (the value of the dollar to a basket of currencies of Euro, pound sterling, Japanese yen, Swiss franc, Swedish Krona and canadian dollar) increased by 26%, exceeding in this year the mark of 100 points for the first time in 12 years.
Raising the fed rate now is very different from the tapering of monetary stimulus in the U.S. in 2013, says Michael Hansen from BofA Merrill Lynch. “Unlike the 2013 cycle of a gradual increase in the fed rate should be much less disruptive to the market. In addition, the indicators of external vulnerability in General look better for most developing countries, and international investors are now less risky,” explains the expert.