The Federal Reserve’s move to raise its short-term interest rate from its historically low near-zero levels was widely expected by economists, but not everyone welcomed the first hike in close to a decade.
Attacking the Fed’s move as “premature”, CEBR economists were critical of the central bank’s move to “fight non-existent inflation”:
“The Fed is treating the risk of inflation as greater than that of deflation. This is an outdated policy in a world with structurally lower growth: they are not currently symmetric,” said economist Alasdair Cavalla.
Fed chair Janet Yellen promised future rate hikes would be “gradual", causing careful optimism among analysts about the impact the decision would have on markets, as Chris Beauchamp, senior analyst at IG, said:
Compared to the volatility that might have transpired had they ducked the decision, the reaction has been muted, but then that is probably the outcome Janet was looking for.
Dean Turner, economist at UBS Wealth Management, agreed that markets should welcome the end of months of uncertainty that the Fed’s announcement will mean:
Although this is more hawkish than the markets currently expect, we believe that the US economy will continue to expand. Tighter monetary policy in the US against easing of monetary conditions in Europe and Japan supports our current tactical positioning.
The Institute of Directors welcomed the rate hike, arguing that the Fed’s decision has given the Bank of England “room to act”:
“For Britain, higher US interest rates give the Bank of England the flexibility to start normalising rates on this side of the Atlantic as well. Since the Fed has acted first, it diminishes the possibility of an increase in UK interest rates upsetting the value of the pound against the dollar – just one more obstacle which could have worried the Bank,” said James Sproule, the institute’s chief economist.