Second Time in the Year Federal Reserve Increases Rates

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Key interest rate by 0.255 raised by the US Federal Reserve and this is their second increase in a year. And the Central Bank voted to raise its key rate target to the range of 1% to 1.255.

That is the highest level since the year 2008 when rates were cut by the policymakers to encourage borrowing and spending after the financial crises. The bank also said it would initiate cutting its bond assets and other securities in this year. It is also cited that US economic growth and job market strength as reasons for raising its standard interest rate.

The Federal Reserve Chair Janet Yellen said: “our decision reflects the progress the economy has made and is expected to make”.

The rise was widely anticipated after a low unemployment rate, but other economic gauges, including inflation, have been weaker.

The data on Wednesday showed US consumer prices unexpectedly fell in the month of May and retails sales recorded their major drop in 16 months and this has raised questions about the bank’s future progression. US stock markets the S&P 500 and the Nasdaq trimmed down at the close. But the rate increase was already priced into most stocks.

The policymakers of Federal Reserve have been grappling with when and how to alter the policies put in place to boost the economic activity after the financial crises in the year 2008. When that was the time they dropped interest rates and bought up US coffers and mortgage-backed securities to keep rates low. The Fed has a 2.4trn portfolio of Treasury bonds and mortgage-backed securities, and most of them were in the wake of the financial calamities and slump.

In the year 2014, the bank bond program was stopped, known as quantitative easing, but it is continued to plough the resources on its books.

The policymakers said on Wednesday they aim to cut down that balance sheet, by reinvesting payments from those securities only above certain caps, totaling $10bn. The cap would escalate in three-month intervals. It would start implementing those policies this year, assuming economic growth continues.

The Fed raises the interest rate for first time since the crises in December 2015 and policy makers acted in December 2016 and again in March. The decision which was taken on Wednesday was in the 8-1 vote.