Analysts believe the upward trend to higher interest rates is likely to prove slow and steady.
The Federal Reserve’s move to raise its key interest rate for the first time in nearly a decade is believed to be the first of many hikes on the horizon. Analysts, however, say the upward trend to higher rates is likely to prove slow and steady to promote continued strength in the economy.
The Fed’s first interest rate increase in nine years came during its final meeting of 2015. After months of speculation over whether the hike would materialize, the Fed removed all doubt by increasing its rate range from 0% to 0.25% to 0.25% to 0.5%.
While only a modest increase, the hike will impact millions of Americans, including savers, investors and home buyers. Mortgage rates will gradually rise while bank deposits will begin to slowly earn more thanks to the increase.
Interest rates were kept at the near-zero mark for years following the impact of the Great Recession. Now years out from the crisis that was defined by high unemployment and a national housing market crash, Fed chief Janet Yellen said the time was right to introduce the hike. She feels “confident about the fundamentals driving the U.S. economy, the health of U.S. households, and domestic spending,” she said during a press conference.
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Key economic indicators support Yellen’s assertion. Unemployment is down to 5% from the 10% rate it witnessed in 2009. An estimated 12 million jobs have been added to the economy since the recession and economic growth is projected at 2.4% next year, up from an earlier estimate of 2.3%.
The Fed has indicated that December’s rate hike is just the first in store for investors. Future increases, however, are promised to be slow and steady to ensure economic indicators and international conditions warrant future climbs.
The rate hike reflects the Fed’s confidence in the country’s strengthening economy, Yellen said during the post-hike conference. That confidence seemed to echo on Wall Street where stocks rose following the hike announcement. The Dow Jones industrial average gained 224 points for the day.
How soon future rate increases will materialize remains unclear. Analysts, however, believe at least one of those gradual increases will get a greenlight in 2016.
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