The Federal Reserve on Wednesday (16 December) raised interest rates for the first time in nearly a decade, with a range of benchmark rates increasing by a quarter of a percentage point to between 0.25 percent and 0.50 percent.
“This action marks the end of an extraordinary seven-year period,” Federal Reserve chair Janet Yellen said in a press conference after the bank’s statement was released. The federal funds rate was held to near zero after the 2007-2009 financial crisis to help boost the economy as well as the collapsed housing market. The move to increase the rates signals faith that the US economy has largely recovered since.
“With the economy performing well and expected to continue to do so, the committee judges that a modest increase in the federal funds rate is appropriate,” said the US central bank’s policy-setting committee. “The economic recovery has clearly come a long way.”
The Fed also noted the “considerable improvement” on the US labour market conditions this year, adding that the Federal Open Market Committee (FOMC) is “reasonably confident” that inflation will rise over the medium term, to its two percent objective.
“The stance of monetary policy remains accommodative after this increase, thereby supporting further improvements in labour market conditions and return to 2 percent inflation,” the FOMC statement said.
“The process of normalising interest rates is likely to proceed gradually,” Yellen said, a hint that further hikes will be slowly coming. She added that the committee is hoping for a slow rate rise but also one that will keep the Fed ahead of the curve as the economic recovery continues. “To keep the economy moving along the growth path it is on … we would like to avoid a situation where we have left so much accommodation in place for so long we have to tighten abruptly.”
Locally, experts believe the recent hike should not have a sudden or disruptive impact on interest rates, as well as the property market in Asia Pacific, given that the increases has been widely anticipated.
“The varied rate cycles in which markets in Asia Pacific currently find themselves should counterbalance the effect on property yields. There may be a gradual upward resetting of return expectations, which in the short term may be more muted as this move has been expected. However, this will work through as rates rise further in the future,” said Dr Henry Chin, Head, CBRE Research, Asia Pacific.
In Singapore, the rate hike is expected to have a minimal impact on the Singapore interbank offered rate (SIBOR) as the local central bank have already priced in the increases. Meanwhile, CBRE’s Desmond Sim noted that it will, however, “put further pressure on capital values in light of the weakening occupier market. The yield spread is not expected to compress any further.”
Image: Federal Reserve Building
Nikki De Guzman, Editor at CommercialGuru, wrote this story. To contact her about this or other stories email nikki@propertyguru.com.sg
