Friday, November 22, 2019

Federal Reserve Raises Interest Rates

By on December 24, 2015

As expected, the Federal Reserve raised interest rates by 0.25%, placing them between 0.25% and 0.5%. This is the first increase since June 2006. With this move, the Federal Reserve shows its confidence in the U.S. economy, which grew more than 2% in the third quarter.

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Interest rates hadn’t been increased since 2006, when Federal Reserve President Ben Bernanke set the rates at levels close to zero in response to the financial crisis unleashed after the fall of Lehman Brothers.

The move had been expected for some time now. Janet Yellen, chairwoman of the Federal Reserve, has been forced to delay plans throughout 2015 as a result of international uncertainties, such as those sparked by Greece in Europe and the slower growth of China’s economy.

“Since the meeting of the Federal Open Markets Committee last October, we were expecting the announcement of this increase at any moment. The increase today doesn’t represent a significant impact on the island’s economy, or for clients of our bank members,” said Zoimé Álvarez Rubio, vice president of the Puerto Rico Bankers Association. “This Federal Reserve decision won’t have an impact on the economic reality that Puerto Rico is going through. However, for years, our banks have been preparing to return to a normalized environment with these types of interest rates. Banks, members of the Puerto Rico Bankers Association, will continue to manage the interest-rate risks, while guaranteeing their capability to give and support the communities they serve.”

Amid Puerto Rico’s long economic crisis, at least two aspects weren’t complicating the issue: the price of oil and the interest rates that were at low levels, which was positive. Facing this economic crisis is easier when the price of a barrel of oil is under $40 rather than at $80 a barrel. While it is hoped the price of a barrel of oil won’t increase, it is interest rates that are starting to change.

The Federal Reserve raises rates because the U.S. economy is growing. A raise in the interest rate promotes saving and discourages credit. Markets such as cars, new housing and mortgage loans, which are very sensitive to interest-rate changes, would be affected.

Nevertheless, Puerto Rico’s economy is on the opposite side of the economic equation since it is contracting. A restrictive monetary policy is being imposed on an economy that isn’t growing. There is some comfort, however, that the rate increases could be slow, thus palliating their impact.

BY SIN COMILLAS STAFF

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