London – U.S. Federal Reserve decided to raise interest rates for the first time in 2016 since the election of Donald Trump, and the second time in a decade.
The bank voted unanimously to raise the U.S. central bank’s target range for the federal funds rate to 0.50 to 0.75 percent
In a statement after two-day Federal Open Market Committee (FOMC) December meeting, the monetary-policy committee said: “The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2-per-cent inflation.”
The statement added that the bank recognizes the considerable progress the economy has made toward its dual objectives of maximum employment and price stability.
“We expect the economy will continue to perform well, with the job market strengthening further and inflation rising to 2 percent over the next couple of years,” explained the statement.
The Fed noted “solid” job gains, with the unemployment rate falling, while economic activity “has been expanding at a moderate pace since mid-year.”
As for next year, currently the Fed’s updated projections signal three quarter-point rate increase; the median of committee members’ predictions is that the federal funds rate will be 1.4 by the end of 2017.
According to the banks’ predictions, U.S. economic growth will speed up slightly and hit 2.1 percent next year, while the unemployment rate will change little and be about 4.7 percent a year from now.
Following the U.S. Federal Reserve’s announcement, Saudi Arabian Monetary Agency (SAMA), the Central Bank of Kuwait (CBK) and the Central Bank of Bahrain (CBB), and Central Bank of the UAE (CBUAE) have all raised their rates to reflect this change.
SAMA has decided to raise the reverse repo rate from 50 bps to 75 bps with immediate effect. The move is said to be in line with recent developments in domestic and international financial markets.
Similarly, CBK’s Board of Directors also decided to raise the discount rate by a quarter percentage point to 2.50 per cent from 2.25 per cent.
The CBB on the other hand, decided to immediately raise its key policy interest rate. CBB’s key policy interest rate on the one-week deposit facility was raised from 0.75 per cent to 1.00 per cent.
CBUAE made an announcement saying it will raise the interest rates applied to its Certificates of Deposits in line with the increase in the interest rates on U.S. dollar.
Certificates of Deposit which CBUAE issues to banks operating in the country are the monetary policy instrument through which changes in interest rates are transmitted to the UAE banking system.
The rate increase also boosted the dollar as oil prices decreased 3 per cent.
International Brent crude futures were down $1.68, or 3 percent, at $54.04 per barrel at 2:41 p.m. ET (1928 GMT). U.S. West Texas Intermediate (WTI) crude oil futures settled down $1.94, or 3.7 percent, to $51.04 a barrel.