The Fed Raises Interest Rates for First Time Since 2006

[DonDadda59]

We're back, America. Ain't no stopping us Now!

Finally! Fed raises interest rates

America's first interest rate hike in nearly a decade is here.

The Federal Reserve raised its key interest rate on Wednesday from a range of 0% to 0.25% to a range of 0.25% to 0.5%.

The rate hike is a small one, but it will affect millions of Americans, including investors, home buyers and savers. Savers should eventually see a little more interest on their deposits at the bank, but big banks didn't make any increases Wednesday. Mortgage rates will gradually rise.

The move was widely expected. It is a sign of how much the economy has healed since the Great Recession. The central bank believes the U.S. economy is strong now and no longer needs crutches and that the move "marks the end of an extraordinary period" of low rates designed to boost the recovery from the Great Recession.

"I feel confident about the fundamentals driving the U.S. economy, the health of U.S. households, and domestic spending," Fed chief Janet Yellen said during a press conference. "There are pressures on some sectors of the economy, particularly manufacturing, and the energy sector...but the underlying health of the U.S. economy I consider to be quite sound."

The Fed telegraphed it will be patient with future rate increases so as not to kill the economic recovery. The central bank's statement said the economy will only merit "gradual increases" in rates, which are likely to remain low "for some time." Yellen repeatedly said during the press conference that future rate hikes will be "gradual."

Stocks rallied with the Dow rising 224 points after the announcement and Yellen's press conference.

Investors were pleased to see that the Fed expects "only gradual increases" in rates next year and that the committee explicitly said it would take into account "readings on financial and international developments."

Related: Wall Street celebrates Fed rate hike

The Fed put interest rates near zero during the financial crisis in December 2008 to help stimulate the economy and boost the collapsed housing market.
But the economy is no longer in crisis. In fact it is a lot healthier -- unemployment now is at 5%, half of the 10% rate it hit in 2009 during the worst of the jobs crisis.

Over 12 million jobs have been added since the recession ended. Wages -- which have barely grown during the recovery -- have also started to pick up recently.

On Wednesday, the Fed's committee improved its economic outlook. Compared to its last forecast in September, the Fed raised its expectations for growth next year to 2.4%, up from 2.3%. It also lowered its projection for unemployment in 2016 to 4.7%, down from 4.8%.

The Fed still has low expectations for inflation. The central bank has two goals: low unemployment and stable inflation. The Fed's target for inflation is 2%, but right now it's close to zero. The Fed sees inflation inching up in the years to come, but not hitting 2% until 2018.

Known as "liftoff," the Fed's action is expected to be the first of more rate increases that will probably come in 2016. The last rate hike was June 2006.

http://money.cnn.com/2015/12/16/news...ike/index.html

[KyrieTheFuture]

Probably not going to end well

[embersyc]

Well there goes the housing market...

[KevinNYC]

[mehyaM24]

hmmm. does this effect the interest payment on the 18 trillion on uncle sams credit card?



really though, HOPEFULLY our congress will begin to cut spending now to compensate for the higher interest payments we'll have to make.

[oarabbus]

Big news. A .25% increase isn't much but if it leads to more increases...

also could be big news for the tech bubble. Shit could burst if interest rates rise.

[KevinNYC]

Big news. A .25% increase isn't much but if it leads to more increases...

also could be big news for the tech bubble. Shit could burst if interest rates rise.

Why would it affect the tech bubble?

At least today, stocks went higher after the announcement?

Also the idea is going to be see how the economy is doing after the increases. Because they could cut a quarter point if the want to reverse course

[oarabbus]

Why would it affect the tech bubble?

At least today, stocks went higher after the announcement?

The interest rate goes up, it becomes more expensive for one bank to borrow money from another, so they raise their own interest rates. that .25% bank-to-bank may end up being a .75% raise bank-to-VC. Now the venture capitalists have less money to throw and gamble on tech companies

[DonDadda59]

Big news. A .25% increase isn't much but if it leads to more increases...

Unless something unforeseen happens, they will be raised again next year. I like the gradual, incremental increases. Great way to test out the water and see just how solid the economy is.

[KevinNYC]

The interest rate goes up, it becomes more expensive for one bank to borrow money from another, so they raise their own interest rates. that .25% bank-to-bank may end up being a .75% raise bank-to-VC. Now the venture capitalists have less money to throw and gamble on tech companies

Venture capitalist typically don't raise their money from bank loans, do they? Venture capitalists should have direct access to investors like pension funds.

[HeatFanSince88]

In fact it is a lot healthier -- unemployment now is at 5%, half of the 10% rate it hit in 2009 during the worst of the jobs crisis.

Unemployment is only lower because the formerly unemployed have stopped trying to get employment altogether, thus they are no longer counted in this "stat". The labor force participation rate only continues to decrease.

[DCL]

"gradual" means they will always be behind inflation, which is good and bad depending on who you are.

[KevinNYC]

Unemployment is only lower because the formerly unemployed have stopped trying to get employment altogether, thus they are no longer counted in this "stat". The labor force participation rate only continues to decrease.

This is untrue.

For one thing, the bureau of labor gives multiple measurements of unemployment each month. The official rate is the u3. They also give the u6 which counts the people you mention, people "marginally attached to the workforce."



Both rates tell the same story. Unemployment shot up in 2009 and has slowly been coming down since early 2010.

For the second thing, I'm not sure the labor force participation rate is very meaningful. It's only been mentioned often recently, it had declining for quite a while before the the recent uses of this.

The labor force participation rate is higher now than it was throughout the 1960's which had a pretty great economy. So what does it tell us?

It rose and rose and peaked in the first few months of 2000. So it's been declining for over 15 years now. What does that tell us?

If you look at the charts, you can see the wave of the baby boomers going through their working life. Let's say grandpa came home from WWII in 1946, he found a girl settled down. Had their first baby in 1950. That baby is retirement age now.


Unemployment has come down, but we are still not at full employment and probably need 5 million jobs to reach that. That's two straight years of strong employment numbers every month. This 5% is not feeling like previous 5% years. Even if that two years of good job growth happens, the Labor Force Participation rate is not going to climb back up to 2000 levels because so many people are going to be retiring.

[KevinNYC]

If you want some fun, search google for "labor force participation rate" before the middle of sept 2008

https://www.google.com/search?q=Labo...17%2F2008&tbm=

and after Sept 2008

https://www.google.com/search?q=Labo...17%2F2016&tbm=

All the top results from the first search are wonky technical pages. Afterwards it's all news sources

[KevinNYC]

Another fun search

“labor force participation rate” site:foxnews.com

Run this before and after Obama's swearing in 1/20/2009