Honolulu Star-Advertiser

Monday, April 22, 2024 81° Today's Paper


Business BreakingTop News

Fed finally lifts key interest rate from near zero

1/2
Swipe or click to see more

Federal Reserve Chair Janet Yellen spoke at the Economics Club of Washington on Dec. 2. (AP Photo/Susan Walsh)

2/2
Swipe or click to see more
In this Wednesday, Feb. 25, 2015, file photo, Federal Reserve Chair Janet Yellen removes her glasses as she testifies on Capitol Hill in Washington, before the House Financial Services Committee hearing: "Monetary Policy and the State of the Economy." A rate increase is expected when the Federal Reserve ends its latest meeting Wednesday, Dec. 16, 2015. It would be the first rate hike in more than nine years. And it would raise the Feds benchmark rate from a record low near zero, where its been for seven years. (AP Photo/Pablo Martinez Monsivais, File)

WASHINGTON » The Federal Reserve is raising interest rates after seven years of record lows. But it’s signaling that further rate hikes will likely be made slowly as the economy strengthens further and muted inflation rises.

The Fed’s move to lift its key rate by a quarter-point to a range of 0.25 percent to 0.5 percent ends an extraordinary seven-year period of near-zero rates that began at the depths of the 2008 financial crisis. Consumers and businesses could now face modestly higher rates on some loans.

The Fed’s action reflects its belief that the economy has finally regained enough strength 6½ years after the Great Recession ended to withstand higher borrowing rates. But the statement announcing the rate hike said the committee expects “only gradual increases” in rates going forward.

Rates on mortgages and car loans aren’t expected to rise much soon. The Fed’s benchmark rate doesn’t directly affect them. Long-term mortgages, for example, tend to track 10-year U.S. Treasury yields, which will likely stay low as long as inflation does and investors keep buying Treasurys.

But rates on some other loans, like credit cards and home equity credit lines, will likely rise, though probably only slightly as long as the Fed’s rate hikes remain modest.

For months, Chair Janet Yellen and other Fed officials have said they expected any rate hikes to be small and gradual. But nervous investors have been looking for further assurances.

The central bank’s target for the federal funds rate the interest that banks charge each other has been at a record low between zero and 0.25 percent since December 2008. At the time, Fed officials led by Ben Bernanke were struggling to contain a devastating financial crisis that triggered the worst recession since the Great Depression.

The recession officially ended in June 2009. But unemployment kept rising, peaking at 10 percent before starting to fall. The jobless rate is now at a seven-year low of 5 percent, close to the Fed’s target for full employment.

After the financial crisis, the Fed turned to other extraordinary measures, including a series of bond purchases intended to shrink long-term loan rates. The Fed ended the purchases in October 2014, though it’s kept credit loose by reinvesting its bond holdings.

Those enormous holdings will complicate the Fed’s efforts to raise its target rate. But the central bank has tested other tools to help it achieve the increases it wants in the funds rate.

Some analysts expect the Fed to raise rates at every other meeting in 2016, for a total of four quarter-point moves. Others think that after Wednesday’s hike, the Fed could wait until June before raising rates again.

While Fed officials want to move slowly, an acceleration in inflation could force them to raise rates more quickly. Right now, the Fed’s preferred price gauge is up a scant 0.2 percent over the past 12 months. Even excluding volatile energy and food, prices are up just 1.3 percent.

41 responses to “Fed finally lifts key interest rate from near zero”

  1. choyd says:

    Clearly, the economy is SO BAD that..oh wait. Why is the economy so bad that we’re raising rates? Doesn’t that actually slow down some aspects of growth? Why would we do that during a bad economy? Is this a bad economy? Shouldn’t the Fed lower rates if unemployment is up, which it’s not? I’m confused.

    Sorry, this GOP manual I have on how to bash Democrats doesn’t make sense.

    • thos says:

      Very little of the real world makes sense to a person with blinders so tightly worn – – as you do – – to prevent that nasty old thing called Truth from intruding on your shimmering fantasies of how things “ought” to be.

    • AhiPoke says:

      Who said the economy is “SO BAD”? After seven years of poor economic growth don’t you think it’s about time that a rate increase could be justified. Our economy is still chugging along at about 2%, not bad but definitely not good. So to imply that everything is good is a major stretch. At 2% growth, our country will face huge downstream problems, specifically paying for all of our non-discretionary expenses (interest, medicare, social security, etc.). No matter what the politicians say, it can’t happen with 2% growth.

      • advertiser1 says:

        Sorry, I’m not getting your opinion. Specifically the part about 7 years of poor growth, and “don’t you think that a rate increase could be justified.” The general thought is that you keep the prime low to encourage banks to lend (at a lower rate) so that businesses have access to capital to expand.

      • choyd says:

        “Who said the economy is “SO BAD”?”

        All of the Republican candidates for the Presidency. Also Thos. See his post above yours. He of course, as expected, fails to provide any reasoning for it though. Not that Thos can actually argue. All he can do is snipe.

        2% growth is expected for developed economies. No reputable economist believes that any developed state can grow beyond 2% for prolonged periods of time. Furthermore, you’re out of your mind if you think we aren’t doing much better than we were before. Remember when people were HAPPY with a 50% loss to their stock portfolios? Remember when foreclosures were everywhere? Foreclosure attorneys have changed law specialities because the work is dramatically down. Notice the help wanted signs all over the state? The country? See the housing booms? How about you ask Thos who disagrees with me that the economy is good?

        • thos says:

          “Not that Thos can actually argue. All he can do is snipe.”

          One shot, one hit. Truth stings, eh?

        • choyd says:

          Not at all. Your inability to provide an argument is proof I’ve long won. If you had anything of substance, or even the capacity to refute anything I’ve ever said, you would. Instead, all you do is personally attack me while deliberately avoiding my arguments and fleeing from every challenge made to you.

          Your constant sniping is confirmation that you have lost.

        • thos says:

          choyd says: “Not at all. Your inability to provide an argument is proof I’ve long won. Your constant sniping is confirmation that you have lost.”

          And yet having “won” with such “proof”, you continue to respond – – as helpless as a moth drawn to flame. Do by all means continue to amuse me with your inconsequential humma humma as I have very low tastes when it comes to such basic entertainment.

        • choyd says:

          I think you’re confused Thos. I’m reveling in your constant failure.

          You ran from proving the economy is bad.

          You ran from pointing out how I am wrong on missile defense.

          You ran from me pointing out how you cannot even condemn sexual assault.

          You always run. Because you are a coward.

    • mxp2000 says:

      Keep thinking the way you do, please. I’ll be there to buy everything you own when you have a firesafe on craigslist to pay your bills.

  2. wrightj says:

    This long article just talks to us in circles, and doesn’t really make any sense.

    • mikethenovice says:

      What goes up must come back down.

    • thos says:

      “The jobless rate is now at a seven-year low of 5 percent, close to the Fed’s target for full employment.”

      This is as good an argument for getting rid of the Federal Reserve – – no checks and balances on its power and thus accountable to no one – – as one is likely ever to see.

      The books have been cooked by White House apparatchiks. Anyone who believes that with 92 million people who cannot find full time employment, that Unemployment is a mere 5 per cent, DESERVES to be swindled.

      The Fed is a bad idea whose time if it ever did come is now long gone. Dissolve the Fed and return monetary decision power to Treasury where it belongs. And while we’re at it, let’s quit pretending that our current monopoly money is anything close to a stable currency. What is needed are GOLD backed certificates making the dollar once again literally as good as gold (e.g. per the 1944 Bretton Woods Agreement of $35 per ounce of gold.)

      • advertiser1 says:

        You list an interesting number, that is 92 million who cannot find full time employment. Would you mind sharing the source, I am interested in learning more.

        • choyd says:

          Thos is blaming Obama for the baby boomers getting old.

          That’s how detached from reality he is.

        • thos says:

          google “labor participation rate” and, inter alia you will find this gem:
          A record 94,610,000 Americans were not in the American labor force last month — an increase of 579,000 from August — and the labor force participation rate reached its lowest point in 38 years, with 62.4 percent of the U.S. population either holding a job or actively seeking one.Oct 2, 2015

        • thos says:

          choyd says: “Thos is blaming Obama for the baby boomers getting old.”

          Another lie from your unending supply of same. But in the spirit of full disclosure, were the current occupant of the White House to expedite Grim Reaper’s harvesting of the worthless, dope smoking, flag burning, draft dodging, combat veteran cursing Cry Baby Boom cohort, I would certainly give him a well deserved ATTABOY.

    • FARKWARD says:

      Y’ALL! I think that “advertiser1” is attempting to teach you something about economics and how the game is played. Apparently, many hereon misread the article and others simply don’t understand. That’s O.K.–it’s not a simple topic, per se. Maybe, try starting here: First, understand what the Federal Reserve really is–it is no more “Federal” than “Federal Express”. For a simpler understanding and overview, try going to “Wikipedia” and look up “Federal Reserve Bank”. Once you start to understand what controls the FRB system, you begin to see a completely different picture of the relationships between The World Bank, The IMF, the Central Banks, etc…
      A commenter below stated “The White House cooks the books”; and yes of course the U.S. Treasury and Departments of Finance, etc. do that, but it has no direct relationship to the “Fed Rate” as such. Just think of the U.S. Government as a Corporation and what goes on within that Corporation is another story; and you are a stockholder–who is getting screwed, as such…
      Good readings! Grow and PROSPER! Be SELF-SUSTAINING–NO “GOVERNMENT” WILL SAVE YOU.., but they will definitely take your money vis-à-vis TAXES (on all levels) and promise you NERVANA.

  3. wilikitutu says:

    A mistake.

  4. mikethenovice says:

    No more free toasters with a new CD account from the bank.

  5. boolakanaka says:

    Some of the comments exhibit a basic ignorance of how macro-economics work, and what natural affects it may potentially have for consumers. Allow me to paraphrase and explain–What does that actually mean? The federal funds rate is the interest rate banks charge when loaning money to each other, and the Fed sets a target range because it can’t directly manipulate the federal funds rate. Instead, it uses the means available to it as the central bank—creating or removing money from the financial system—to bring about changes that affect the federal funds rate. (Of course, this is not actually as straightforward as it sounds.)

    One consequence of all this is that it becomes more expensive to borrow money. The cost of getting a loan has been close to free for the past few years, which is ideal during recessionary times: When loans are cheap, that encourages people, businesses, and investors to spend money, which stimulates the economy. That said, keeping rates low for too long can cause asset bubbles. (Inflation is also another consideration in raising rates, but current readings have been mysteriously low.)

    How does this play out for the average consumer? The most common type of loans becoming more expensive are mortgages, credit-card debt, and car loans—which will indirectly become more costly as a result of an interest-rate increase. This is what’s referred to as tightening of the credit market.

    The upside, though, is that saving money will become marginally more attractive: Low rates have meant that the incentive to put money away has been virtually nil—for years, savings accounts have had such low interest rates that $1,000 held for a year only turns into $1,001 or $1,002. While gains will likely soon be larger than that, banks are usually slower to raise interest rates on savings accounts than on loans. On top of that, the Fed has noted that it will raise interest rates gradually, so the magnitude of these changes will be small at first.

    The bottom line here is straightforward: As Fed Chairwoman Janet Yellen mentioned in a recent speech, that is to say–an interest-rate hike is a clear signal that the economy is improving.

    • thos says:

      And all the hot money kicked into the mix by the Fed with zero interest is great for the likes of hedge fund managers and other Wall Street toilers, but the bennies have yet to reach Main Street where ordinary people live. No wonder both political parties now ignore the little guy and go after the big buck campaign donors. Average Americans are no longer represented in the halls of power. That is why Trump is now surging.

      • boolakanaka says:

        I can’t speak for anyone else, but i am doing much better than from 7 years ago. Rental properties I own, are not renting at 40% more, portfolio has doubled, and the ability to borrow has exponetially been easier.

        • choyd says:

          You won’t get a real response from Thos. Thos blames Obama for letting the Baby Boomers get old. And he refuses to look at all of the economic data showing people are doing better.

          Wages are up for literally everyone except 18-35, no college white males…which I suspect Thos is given his hatred for Obama to the point Thos rejects his own beliefs because Obama adopted them.

          And he thinks that the POSTER CHILD OF SPECIAL INTEREST who was born with a diamond encrusted platinum spoon in his mouth can somehow represent the average American.

        • thos says:

          Well, I am happy for you. Sadly a great many of your fellow Americans are not doing quite so well. Just look at how busy our local neighbor helping neighbor food pantries are. Le me suggest that you might take a moment to keep them in your prayers and, while you are at it, pray as well for a good strong turn out next November. Vox Populi needs to sound off in a way our so called public servants will pay attention to. They are supposed to work for us, not serve as our masters.

        • thos says:

          choyd says: ”
          You won’t get a real response from Thos.”
          You bring breath taking new meaning to the word
          ‘dunce’. You now have my permission to carry on.

        • choyd says:

          Perhaps thos, if you got a college education you wouldn’t be in the 18-35 white male group that is doing badly? Perhaps if you actually tried to do something other than burger flipping you’d be better off?

        • thos says:

          On December 17, 2015 at 7:52 am choyd says:

          “Perhaps thos, if you got a college education you wouldn’t be in the 18-35 white male group that is doing badly? Perhaps if you actually tried to do something other than burger flipping you’d be better off?”

          WOW! A full day later and you’re still trying to convince yourself. Truth really gets under your skin, eh? By all means keep scratching.

        • choyd says:

          Thos, seriously, is projection all you have?

        • thos says:

          On

          December 17, 2015 at 12:16 pm choyd says: ”

          Thos, seriously, is projection all you have?”
          Last word f r e a k? No surprise there.

        • choyd says:

          I’ve already got it on a number of post above.

          You’re running from those. You always run. Because you are a coward.

          You will never, ever, ever be able to refute anything I say.

        • choyd says:

          Hey, Coward formerly known as “Thos,

          Shall it take you’re again fleeing from this thread after I tore you a new one?

          http://www.staradvertiser.com/breaking-news/russian-general-says-new-weapons-will-neutralize-u-s-shield/#comment-8260

      • sarge22 says:

        “Look at it this way. The banking system as a whole does not need to borrow as it is sitting on $2.42 trillion in excess reserves. The negative impact of the “rate hike” affects only smaller banks that are lending to businesses and consumers. If these banks find themselves fully loaned up and in need of overnight reserves to meet their reserve requirements, they will need to borrow from a bank with excess reserves. Thus, the rate hike has the effect of making smaller banks pay higher interest expense to the mega-banks favored by the Federal Reserve.

        A different way of putting it is that the “rate hike” favors banks sitting on excess reserves over banks who are lending to businesses and consumers in their community.

        In other words, the rate hike just facilitates more looting by the One Percent.” Paul Craig Roberts

  6. KB says:

    LOOK WHAT HAPPENED TO ALL THE FIXED INCOME OLDER PEOPLE …FOR A LOT OF YEARS …NO EXPLANATION , NO THANK YOU AND STILL NO HELP …ALL A LOT OF THEM HAVE WAS SAVINGS THAT DID NOT EARN NO INTEREST …THEY WERE NOT THE AGGRESSIVE INVESTOR TYPES …WOW NO EMPATHY ..ALOHA

    • RichardCory says:

      Then they should have put their money in bonds, as that’s not an “aggressive” form of investment and they’d have gotten better rates than just leaving cash in a savings account. Not really sure what you’re complaining about. Do you want the government to be managing your money or something?

Leave a Reply