US lending rates hike

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  • The US Federal Reserve has raised the key interest rates to a range of 2.25 per cent to 2.5 per cent.
  • This is the 4th raise in the Federal Reserve’s rates this year and has reached the highest point since 2008.
  • The main implication of the raising of the interest rates would be an increase in the borrowing costs for individuals and businesses.
  • The Fed has been raising the interest rates gradually as the US economy continues to strengthen.
  • The Fed began tightening of the credit about three years ago and the current hike is the Fed’s ninth hike since then.

 

Current Position of the US Economy:

  • Presently, the US economy is showing strength.
  • The unemployment rate has gone down to 3.7 per cent which is a 49-year low.
  • Consumers are spending freely which is the main engine of the economy.
  • The economy has grown by about 3 per cent this year, which is the best growth rate of the US economy in more than a decade.
  • But there are a set of challenges that the US economy is facing which includes Donald Trump’s protectionism and Trade war, slowing down of China’s economy, and Brexit.
  •  It is feared that the US economy might slow down in 2019 as the benefits of the stimulus fade away.
  • The rise in US interest rates has started weakening the loan-sensitive sectors of the economy such as housing, autos.
  • Additionally, the Fed has been gradually decreasing Treasury and mortgage bonds which is going to put more upward pressure on the borrowing rates for consumers and businesses.