US Federal Reserve raises interest rates

Central bank raises rates by 0.25 percent to 0.5 percent, ending measures taken after the global financial crash.

Janet Yellen
Rates had been left untouched since 2006 throughout the global financial crisis [Richard Drew/AP]

The US Federal Reserve has raised interest rates for the first time since 2006, ending measures brought in after the global financial crisis in 2007.

The increase by 0.25 percent was announced on Wednesday afternoon after a two-day policy meeting between officials with stocks rallying in early trading in Europe and the US.

At a press conference after the announcement, Janet Yellen, chair of the Board of Governors of the Federal Reserve, said the decision was taken after an “extraordinary seven year period”.

World economy in the hands of Fed

“The economic recovery has clearly come a long way although it is not yet complete, room for further improvement in the labour market remains,” Yellen said.

“With the economy performing well and expected to continue to do so, the committe judged that a modest increase … is now appropriate.”

The rate, which stands at 0.5 percent after Wednesday’s increase, was kept the same throughout the global credit crunch so that financial institutions could borrow cheaply and in turn allow them to lend at lower rates.

Michael Hewson, a financial-markets analyst, told Al Jazeera the small increase was an indication of the concern policy-makers had about raising rates too fast.

“Some of the data we’ve seen come out of the manufacturing sector does seem to suggest that part of the US economy is in recession … some of these forecasts do seem to suggest the Fed is going to be on a gradual path,” Hewson said.

Al Jazeera’s Tom Ackerman, reporting from Washington DC, said Wednesday’s announcement could be a prelude to further increases in the coming months.

“The Fed is taking it slow,” he said, “and that it is perfectly willing to either accelerate or even reverse course depending on what the outlook seems to be in the US economy and the world economy at large.”

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Source: Al Jazeera