The United States Federal Reserve on Wednesday raised its policy interest rate to a range of 1.75% to 2% and withdrew its stance that it would keep rates low for some time, as the economy had “strengthened” in the last few years.
The new rates are the highest since 2008. The US Federal Reserve, like several other central banks, had lowered interest rates drastically to near-zero levels to boost lending after the financial crisis of 2008, so that the economy would get back on track.
“The economy is doing very well,” US Federal Reserve Chairman Jerome Powell said after the two-day meeting of the Federal Open Market Committee. “Most people who want to find jobs are finding them. Unemployment and inflation are low...The overall outlook for growth remains favourable.”
The Federal Open Market Committee also projected a faster pace of rate increases in the rest of the year. Two more increases are still expected by the end of 2018 despite the rate hike on Wednesday. The committee had projected two more hikes after the last meeting in March as well.
In the last two years, the Federal Reserve has increased the rates gradually as the economy has recovered.
Asian share indices declined on Thursday morning after the Federal Reserve’s decision, Reuters reported. The BSE Sensex fell by 151.44 points to 35,587.72 in early trade, after gaining 295.49 points in the last three sessions. The National Stock Exchange’s Nifty 50 slipped by 49.30 points to 10,807.40.
Market participants typically expect emerging market economies like those in Asia to suffer when the US economy gets more attractive for investment.