U.S. Fed raises key interest rate by quarter-point

WASHINGTON -- The U.S. Federal Reserve is raising interest rates after seven years of record lows. But it's signalling that further rate hikes will likely be made slowly as the economy strengthens further and muted inflation rises.

See Full Article

The Fed's move Wednesday to lift its key rate by a quarter-point to a range of 0.25 per cent to 0.5 per cent ends an extraordinary seven-year period of near-zero rates that began at the depths of the 2008 financial crisis. Consumers and businesses could now face modestly higher rates on some loans.

The Fed's action reflects its belief that the economy has finally regained enough strength 6 1/2 years after the Great Recession ended to withstand higher borrowing rates. But the statement announcing the rate hike said the committee now expects "only gradual increases" in rates.

Investors' immediate reaction to the Fed's announcement, which was widely anticipated, was muted. Stocks moved slightly up. Higher interest rates in the U.S. tend to cause the dollar to strengthen against other currencies.

The bond market didn't' react much. The yield on the 10-year Treasury note held steady at 2.27 per cent.

Rates on mortgages and car loans aren't expected to rise much soon. The Fed's benchmark rate doesn't directly affect them. Long-term mortgages, for example, tend to track 10-year U.S. Treasury yields, which will likely stay low as long as inflation does and investors keep buying Treasurys.

But rates on some other loans, like credit cards and home equity credit lines, will likely rise, though probably only slightly as long as the Fed's rate hikes remain modest.

Shortly after the Fed's announcement, major banks began announcing that they were raising their prime lending rate from 3.25 per cent to 3.50 per cent. The prime rate is a benchmark for some types of consumer loans such as home equity loans. Wells Fargo was the first bank to announce the rate hike.

For months, Chair Janet Yellen and other Fed officials have said they expected any rate hikes to be small and gradual. But nervous investors have been looking for further assurances.

An updated economic forecast released with the policy statement showed that 14 of the 17 Fed officials foresee four or fewer rate hikes in 2016. That is in line with the consensus view of economists that the Fed's target for the federal funds rate -- the that banks charge on overnight loans -- will end next year around 1 per cent.

The Fed's action was approved by a unanimous vote of 10-0, giving Yellen a victory in achieving consensus.

The Fed statement struck a generally more upbeat tone in its assessment of the economy. It cited "considerable improvement" in the job market. And it expressed more confidence that inflation, which has been running well below the Fed's 2 per cent target, would begin rising. It suggested that this would happen as the effects of declines in energy and import prices fade and the job market strengthens further.

The central bank's target for the federal funds rate -- the interest that banks charge each other -- has been at a record low between zero and 0.25 per cent since December 2008. At the time, Fed officials led by Ben Bernanke were struggling to contain a devastating financial crisis that triggered the worst recession since the Great Depression.

The recession officially ended in June 2009. But unemployment kept rising, peaking at 10 per cent before starting to fall. The jobless rate is now at a seven-year low of 5 per cent, close to the Fed's target for full employment.



Advertisements

Latest Economic News

  • Asian stocks lower after Wall Street falters

    Economic CTV News
    HONG KONG - Asian stocks are drifting lower on Thursday after a lacklustre performance on Wall Street. KEEPING SCORE: Tokyo's benchmark Nikkei 225 index dipped 0.3 per cent to 19,167.86 and South Korea's Kospi slipped 0.3 per cent to 2,161.05. Source
  • B.C. envoy says the window is open slightly for softwood lumber deal with U.S.

    Economic CTV News
    VICTORIA -- British Columbia's softwood trade envoy says there's a slight opportunity to quickly negotiate a new lumber agreement between Canada and the United States, but if a deal can't be reached by the summer or fall it could mean a lengthy fight. Source
  • Lululemon shares drop after weak outlook

    Economic CBC News
    Shares of Lululemon Athletica Inc. fell sharply in after-hours trading Wednesday after the athletic-inspired sportswear company delivered a weak outlook for the current quarter. The Vancouver-based company says it earned $136.1 million US, or 99 cents per share, for the three months that ended Jan. Source
  • Cenovus Energy buying most of ConocoPhillips's Canadian assets for $17.7B

    Economic CTV News
    CALGARY -- Cenovus Energy (TSX:CVE) announced Wednesday it will spend $17.7 billion to acquire most of the Canadian assets of ConocoPhillips, making the Houston-based company the latest international player to reduce its exposure to the oilsands. Source
  • Cenovus Energy buying most of ConocoPhillips' Canadian assets for $17.7B

    Economic CBC News
    Cenovus Energy of Calgary says it will spend $17.7 billion to acquire most of the Canadian assets of ConocoPhillips, making the Houston-based company the latest international player to exit the oilsands. Cenovus CEO Brian Ferguson is calling it a "transformational acquisition. Source
  • Canadian coal production hit three-decade low last year as demand wanes

    Economic CTV News
    CALGARY -- The National Energy Board says Canadian coal production dropped to a three-decade low last year as demand waned. Production came in at 60.4 million tonnes, a 12 per cent decline since 2013, and well off the peak of about 79 million tonnes reached in 1997, the NEB said Wednesday. Source
  • Etihad Airways responds to laptop ban with free iPad and Wi-Fi for 1st class

    Economic CBC News
    One Middle Eastern airline targeted by new U.S. rules banning computers on certain flights has responded by offering first and business class passengers complimentary use of a tablet computer with internet access while on board. Abu Dhabi-based Etihad Airways made the announcement on Wednesday, noting that so-called Premium passengers will be welcome to use the service as of Monday. Source
  • Sask. premier invites Calgary energy companies to move to Saskatchewan

    Economic CBC News
    Saskatchewan Premier Brad Wall is taking a turf war with Alberta to its economic heart, inviting energy companies based in Calgary to move their headquarters to his province. In a letter to Whitecap Resources, Wall offers to subsidize relocation costs, trim taxes and royalties and help find space in unused government buildings if the oil and gas firm moves to Saskatchewan. Source
  • Etihad to lend U.S.-bound passengers iPads as ban workaround

    Economic CTV News
    DUBAI, United Arab Emirates -- One Mideast airline affected by the ban on most electronics in the cabins of U.S.-bound flights will lend iPads to its top-paying travellers. Etihad Airways said on Wednesday that it will offer the tablets to U.S. Source
  • Bombardier senior execs earned nearly 50 per cent more in 2016

    Economic CTV News
    MONTREAL - Bombardier's senior executives saw their compensation rise by nearly 50 per cent last year at a time when it laid off thousands of workers, sought government aid and saw the first CSeries passenger jet take flight. Source