As expected, the policy-makers at the US central bank, the Federal Reserve, has increased interest rates by 0.25%. It is the ninth straight monthly rise. That fulfills the promise made by Fed Chairman Alan Greenspan just over a year ago when he said that rates would be returned to neutral at a “measured pace.”
The Fed’s 3.25% contrasts with Japan and the euro zone, where rates are low to try to boost the economy and the UK where they were increased to cool down house prices. The expectation of a rate rise had boosted the value of the dollar against other currencies on the foreign exchange markets. It reached its highest level in 10 months against the Japanese yen.
The deciding factors for the Fed were strong growth in the world’s largest economy.It expanded by 3.8% in the first three months of the year. Also rising oil prices could push up inflation, which the bank is pledged to avoid. In addition Fed officials have been warning that there is a danger of a housing bubble in some parts of the country.
Low interest rates have helped drive a boom in house prices. Wall Street now waits to see if the Fed will signal a pause in its policy of steady, gradual rate hikes.