Yes, finally.
The U.S. Federal Reserve is raising interest rates... for the first time in nearly a decade.
"Earlier today, the Federal Open Market Committee decided to raise the target range for the
federal funds rate by one-quarter percentage point, bringing it to one-quarter to one-half
percent."
The range now stands at point-2-5- to point-5 percent.
The move, while small, is historically significant, since the Fed has held interest rates near
zero for seven years and has not raised them since 2006.
Joining me live from New York is Angela Moon, chief correspondent at Thomson Reuters headquarters...
for reaction on Wall Street and beyond.
Angela, the first rate hike since 2006 - That's BEFORE the Apple rolled out the original iPhone.
Some traders on Wall Street was never around when the rate hike last took place.
Many analysts have never seen a higher interest rate than the record lows set at the depths
of the 2008 financial crisis.
How was the so-called "Fed Day" received on Wall Street?
Good evening, Conn-young.
I came across a great quote that best describes what it was like yesterday on Wall Street.
It's "we're finally done with it and we don't have to talk about it anymore."
As you know, the rate hike had been a highly anticipated move...
We've had the Fed and the chairperson Janet Yellen hint at a rate hike for months now
so there was really no market surprise.
Major U.S. stock indexes rallied as investors took the rate hike as a sign of confidence
in the economy while the dollar gained against the euro and yen as the decision lifted risk
appetite and U.S. Treasury yields.
But another reason why markets were so calm, if you will, was because while the hike was
the first raise in years, the Fed has tightened monetary policy in other ways before, like
letting its monthly asset purchase program lapse in late 2014 following a months-long
reduction in the size of purchases.
In other words, the long-awaited rate increase is viewed as one of a string of gradual steps
away from financial crisis era policy.
So Angela, what does this decision by the Fed actually mean for our wallets... for the
average Joe, if you will?
That's a great question and the short answer to that is probably not too much in the near-term.
One small interest rate hike of one-quarter of a percentage point is unlikely to have
much impact on your budget, but that does not mean you should ignore the decision by
the Fed.
During the press conference yesterday Yellen said that there are some consumer borrowing
rates such as credit card rates linked to short-term rates that might move up slightly.
Indeed, some of the largest banks just minutes after the Fed decision said that it will be
increasing its prime rate to 3.5 percent from 3.25 percent.
Again, not a huge move but something that will make a big impact on the long run.
What should we expect from the Fed going forward...
I mean the move today is referred to as a "liftoff" MEANING this is just the first of
many more hikes to come in the future?
Well, I expect the Fed to wait a couple of meetings to assess the impact of this rate
hike before raising rates again.
We have to note how often Yellen has said the central bank will be "data-dependent"
in its rate decisions and she has repeatedly said the rate increases are likely to be modest
and gradual.
For the stock markets, it's usually from now to 3 months that the S&P struggles.
History shows that the S&P has declined on average about 4.4 percent with the worst performance
reserved for the autos, transports and health care equipment names in previous rate hikes.
But of course, there are many macro-economic factors that are different now from the previous
rate hike eras but something to definitely watch out for.
Definitely.
It is that uncertainty that keeps investors around the world on edge as they find themselves
in uncharted waters.
But, for now... the Fed's historic rate hike seems to have gone smoothly.
Angela Moon, chief correspondent at Thomson Reuters live with us from New York - thanks
so much, Angela.
Pleasure, Conn-young.