The US Fed’s officials failed to surprise financial market participants by increasing the key interest rate by 25 basis points. However, the decision opposite to those taken in the recent seven years should have aroused stronger emotions. It turned out that the Fed’s intention was highly predictable. In case the regulator had decided to remain the interest rates unchanged, the market would have been really astonished.
In the following year, the Federal Reserve is planning to track the inflation level in order to regulate paces of the key interest rate increase. It forecasts four gradual hikes in 2016. Besides, it is also planned to tighten the monetary policy.
Former Fed Chairman Ben Bernanke said that he did not expect that the benchmark interest rate would be held at the record low for so long. He supposes that the US economy is rather healthy to cope with interest rate hikes and risks from a slowdown in the global economy. However, former Treasury Secretary Lawrence H. Summers has quite a different opinion. “In a world where error is inevitable, it’s much better to make easily reversed errors than to make difficult-to-reverse errors.” he said. “A decision to delay rates runs risks that are easily reversed by subsequently raising rates, whereas a decision to raise rates, if it proves to have been the wrong decision, is a much more difficult decision to correct.”
