US Federal Reserve raised lending rates to 2.5 per cent

The US Federal Reserve has raised the key interest rates to a range of 2.25 per cent to 2.5 per cent. This is the 4th raise in the Federal Reserve’s rates this year and has reached the highest point since 2008. The main implication of the raising of the interest rates would be an increase in the borrowing costs for individuals and businesses.
The Fed has been raising the interest rates gradually as the US economy continues to strengthen. The Fed began tightening of the credit about three years ago and the current hike is the Fed’s ninth hike since then. But recently the US Federal Reserve has been considering slowing down or halting it’s hiking of the rates due to factors like global economic slowdown, the trade war between USA and China, still-mild inflation, fall in stock prices to avoid weakening the US economy too much.

Current Position of the US Economy:

Presently, the US economy is showing strength. The unemployment rate has gone down to 3.7 per cent which is a 49-year low. Consumers are spending freely which is the main engine of the economy. The economy has grown by about 3 per cent this year, which is the best growth rate of the US economy in more than a decade.
But there are a set of challenges that the US economy is facing which includes Donald Trump’s protectionism and Trade war, slowing down of China’s economy, and Brexit. It is feared that the US economy might slow down in 2019 as the benefits of the stimulus fade away. The rise in US interest rates has started weakening the loan-sensitive sectors of the economy such as housing, autos. Additionally, the Fed has been gradually decreasing Treasury and mortgage bonds which is going to put more upward pressure on the borrowing rates for consumers and businesses.

Month: Current Affairs - December, 2018