The United States Federal Reserve announced on Wednesday that it has raised interest rates for the first time after almost a decade. Experts believe the move signifies that the U.S. economy has sufficiently recovered from the financial crisis from 2007 to 2009.
The American central bank's Open Market Committee voted to adjust its interest rate range by as much as a quarter of a percentage point, bringing the benchmark to around 0.25 percent to 0.50 percent.
This effectively settles the debate of whether the country's economy has recovered enough to be able to handle increasing borrowing costs.
While many observers consider the Federal Reserve's decision to raise interest rates necessary, some economists argued against such a move. Opponents believe the Fed wanted to increase rates only to have them lowered later on if the economy begins to struggle again.
Larry Summers, a former economic advisor to the Obama Administration, stated in his blog that choosing to hike rates now merely for the sake of raising them would be a critical mistake, especially since it could only slow down an already slow moving economy.
"There is certainly a real risk that slow speed becomes stall speed becomes recession," the financial expert wrote.
Summers explained that mature recoveries, such as the current one, typically last for only an additional three years. However, the reluctance of politicians to utilize fiscal policy combined with low interest rates could cause a significant slowdown to become high disruptive.
Impact on Consumers
As far as consumers are concerned, the biggest impact the Federal Reserve's rate hike could have is if the move causes the economy to enter another recession.
Rates for credit cards are typically influenced by the rate of the federal funds. An increase of around a quarter percent would not be felt by most consumers unless they are already paying for around 15 percent on their balance.
People who own savings accounts at local banks might also notice a slight increase in their interest.
Bonds and stocks owners are likely to experience effects of the rate hike as well. The price of high-risk bonds known as junk has dropped in previous weeks in anticipation of the Federal Reserve's decision, while stocks are due for a sell-off in the coming months, according to some experts.
In a recent poll conducted by the Bank of America, around 58 percent of fund managers think the Federal Reserve will hike interest rates three more times in the next 12 months.
Meanwhile, around 43 percent of regional fund managers who participated in the poll expect the Chinese economy to deteriorate in 2016. This marks a four percent increase from numbers collected last month.
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