Fed Reserve announces historic rate increase, first since 2006

[propertycarrots]

The US central bank's policy-setting committee raised the range of its benchmark interest rate by a quarter of a percentage point to between 0.25 per cent and 0.50 per cent.

WASHINGTON: The Federal Reserve hiked interest rates for the first time in nearly a decade on Wednesday, signalling faith that the US economy had largely overcome the wounds of the 2007-2009 financial crisis.

The US central bank's policy-setting committee raised the range of its benchmark interest rate by a quarter of a percentage point to between 0.25 per cent and 0.50 per cent, ending a lengthy debate about whether the economy was strong enough to withstand higher borrowing costs.

"The Committee judges that there has been considerable improvement in labour market conditions this year, and it is reasonably confident that inflation will rise over the medium term to its 2 per cent objective," the Fed said in its policy statement, which was adopted unanimously.

The Fed made clear that the rate hike was a tentative beginning to a "gradual" tightening cycle, and that in deciding its next move it would put a premium on monitoring inflation, which remains mired below target.

"In light of the current shortfall of inflation from 2 per cent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate," the Fed said.

New economic projections from Fed policymakers were largely unchanged from September, with unemployment anticipated to fall to 4.7 per cent next year and economic growth at 2.4 per cent.

The statement and its promise of a gradual path represents a compromise between those who have been ready to raise rates for months and those who feel the economy is still at risk.

The median projected target interest rate for 2016 remained 1.375 per cent, implying four quarter-point rate hikes next year.

To edge that rate from its current near-zero level to between 0.25 per cent and 0.50 per cent, the Fed said it would set the interest it pays banks on excess reserves at 0.50 per cent, and said it would offer up to US$2 trillion in reverse repurchase agreements, an aggressive figure that shows its resolve to pull rates higher.

Financial markets had expected the rate hike, bolstered by recent U.S. data showing job growth continuing at a strong pace.

A Dec 9 Reuters poll showed the likelihood of a hike on Wednesday was 90 per cent, with economists forecasting the federal funds rate to be 1.0 per cent to 1.25 per cent by the end of 2016 and 2.25 per cent by the end of 2017.

The rate hike sets off an immediate test of new financial tools designed by the New York Fed for just this occasion, as well as a likely reshuffling of global capital as the reality of rising US rates sets in.

The impact on business and household borrowing costs is unclear. One of the issues policymakers will watch closely in coming days is how long-term mortgage rates, consumer loans and other forms of credit react to a rate hike meant not to slow an economic recovery but nurse monetary policy back to a more normal footing.

The Fed emphasized it would move gingerly into its tightening cycle. That was enough to produce a unanimous vote on the policy-setting Federal Open Market Committee, as even members who had argued publicly for delaying a rate hike delay went along with Fed Chair Janet Yellen and other policymakers.

Yellen is scheduled to hold a press conference at 2.30pm (3.30am Singapore time Thursday)

http://www.channelnewsasia.com/news/...s/2353954.html

[propertycarrots]

Fed Ends Zero-Rate Era; Signals 4 Quarter-Point Increases in 2016

The Federal Reserve raised interest rates for the first time in almost a decade, a widely telegraphed move that Chair Janet Yellen said would be followed by “gradual” tightening as officials watch for evidence of higher inflation.
The Federal Open Market Committee unanimously voted to set the new target range for the federal funds rate at 0.25 percent to 0.5 percent, up from zero to 0.25 percent. Policy makers separately forecast an appropriate rate of 1.375 percent at the end of 2016, the same as September, implying four quarter-point increases in the target range next year, based on the median number from 17 officials.
“The economic recovery has clearly come a long way, although it is not yet complete,” Yellen told a press conference following the conclusion of the FOMC’s two-day meeting in Washington. “The committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen.”

The increase draws to a close an unprecedented period of record-low rates that were part of extraordinary and controversial Fed policies designed to stimulate the U.S. economy in the wake of the most devastating financial crisis since the Great Depression. The FOMC lowered its benchmark rate to near zero in December 2008, three months after the collapse of investment bank Lehman Brothers Holdings Inc. and 10 months before unemployment in the U.S. peaked at 10 percent.
Inflation Outlook
"The one phrase that I think is notable is that the committee is confident that inflation will rise, and that was the key criterion that changed," said Guy LeBas, managing director and chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia.
The Standard & Poor’s 500 Index of U.S. stocks jumped 1.5 percent to 2,073.07 in New York, rising for three consecutive days for the first time since October while erasing losses for the year. The dollar fluctuated against the euro after the decision, falling as much as 0.7 percent. It later recouped losses, climbing 0.3 percent to $1.0902 per euro as of 4:14 p.m. in New York.
While the vote was unanimous, the rate forecasts show that two officials among the full group of voters and non-voters saw no rate increases as appropriate in 2015, without identifying them.

“The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate,” the FOMC said. “The actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”
Balance Sheet
The FOMC said it expects to maintain the size of its balance sheet “until normalization of the level of the federal funds rate is well under way.”
The quarter-point increase in the target fed funds rate, the overnight interbank lending rate that influences other borrowing costs in the economy, was forecast by 102 of 105 analysts surveyed by Bloomberg News.
The Fed gave a largely positive assessment of the U.S. economy, saying that expansion continued at a “moderate pace” and that a “range” of job-market indicators “confirms that underutilization of labor resources has diminished appreciably since early this year.”
The central bank also said that the risks to the outlook for economic activity and the labor market are now “balanced,” changing from a previous reference to being “nearly balanced.”

Hiking Without a Map
The U.S. Federal Reserve voted Wednesday to lift interest rates after 7 years at near-zero. Economic conditions barely resemble the last time the Fed raised rates, leaving policy makers without comparable experience to guide their way as they try to determine a path forward for stable economical growth.

Sustainable Improvement
“Americans should realize that the Fed’s decision today reflects our confidence in the U.S. economy,” Yellen said. “While things may be uneven across regions of the country and different industrial sectors, we see an economy that is on a path of sustainable improvement.”
Still, the recovery has been disappointing for many. Household incomes remain lower than they were a decade ago when adjusted for inflation, and wages have climbed only sluggishly even as firms hired back workers. Hourly earnings have risen by about an average 2.2 percent annual pace over the past seven years, compared with 3.3 percent in the 20 years through 2008.
The Fed said monetary policy is still “accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”
The central bank acknowledged the state of low inflation, saying that it plans to “carefully monitor actual and expected progress toward” its 2 percent target.
As part of the decision, the Fed increased the interest it pays on overnight reverse repos to 0.25 percent from 0.05 percent to put a floor at the lower end of the range. It also raised the interest it pays on excess reserves held at the Fed to 0.5 percent from 0.25 percent to mark the upper end of the range.
In a related move, the Fed’s Board of Governors unanimously voted to raise the discount rate, which covers direct loans to banks, by a quarter point to 1 percent.
In addition to setting rock-bottom short-term interest rates during the crisis, the Fed engaged in three rounds of bond purchases aimed at suppressing long-term rates to stimulate borrowing and spending. Officials also provided unusually explicit guidance, assuring investors for years they intended to keep rates low well into the future.
Prior to 2008, the effective fed funds rate had never dropped below 0.63 percent, according to data compiled by the St. Louis Fed dating back to 1954.

http://www.bloomberg.com/news/articl...2016-increases

[star]

Some Cooling measures likely to remove soon.

[star]

I think they raise rate at the wrong time. When countries all over the world (China, Europe, Japan) are decreasing rate, US does the opposite. US increase rate when the world growth is still weak. China might screw US up.

[Citizen]

The rate hike is insignificant to property buyers but it will some affects on sellers.

[indomie]

I am more interested to see the effect of AEC (1st January) on rental market

[teddybear]

How to remove property cooling measures when OCR private properties are still up 50% to 100% above 2009 lows and has not even dropped >10% from historical peak?

Remove cooling measures means slapped their own face since they are telling everyone by their action that "cooling measures" is not really about cooling property prices?

What they need is more cooling measures for OCR private properties targeting foreigners' buying.........

Some Cooling measures likely to remove soon.

[star]

How to remove property cooling measures when OCR private properties are still up 50% to 100% above 2009 lows and has not even dropped >10% from historical peak?

Remove cooling measures means slapped their own face since they are telling everyone by their action that "cooling measures" is not really about cooling property prices?

What they need is more cooling measures for OCR private properties targeting foreigners' buying.........

Whether ocr, rcr, ccr it will be removed.

[Luke65]

Bidadari HDB flats are oversubscribed,
Resale HDB flats are selling past $800k - $900k, with some crossing $1m mark regularly,
New launches at Poiz residences, highland residences are selling well,

with such data going to MND, how will they consider removing cooling measures in short term..... Sibor rates already factored in US Fed rise, just watch how STI is performing today. Directionless...

[indomie]