Signaling faith that the US economy had largely overcome the wounds of the 2007-2009 financial crisis, the Federal Reserve has hiked the interest rates for the first time in nearly a decade. "The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise over the medium term to its 2 percent objective," the Fed said in its policy statement. "In the light of the current shortfall of inflation from 2 percent, 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. The Fed said that it would set the interest it pays banks on excess reserves at 0.50 percent, and said it would further offer up to $2 trillion in reverse repurchase agreements, an aggressive figure that shows its resolve to pull rates higher. "The Fed is going out of its way to assure markets that, by embarking on a "gradual" path, this will not be your traditional interest rate cycle," said Mohamed El-Erian, Chief Economic Advisor at Allianz. The S&P BSE Sensex surged over 100 points in morning trade on Thursday, tracking Asian markets, which were trading higher after US Federal Reserve hiked rates by 25-basis-point almost after a decade. The rupee appreciated by 13 paise at 66.60 against the US dollar in early trade on increased selling of the American currency by exporters. The Sensex had settled at over a one-week high of 25,494.37 mostly on value buying, while the broader NSE Nifty finished slightly above 7,750-mark, on yesterday. Asian stocks posted broad gains today morning after the Fed indicated further rate hikes will be gradual. “US Fed delivered exactly what the markets expected with an upbeat assessment of US economy and dovish commentary on future rate hikes. This cheered equity bulls,” said Sageraj Bariya of East India Securities. By Premji: Source: http://www.morningcable.com
