The move, announced on December 16, 2015 in a statement from the Federal Open Market Committee, was widely expected and marks the first time the central bank has raised the funds rate in almost 10 years. The funds rate is the principal lever for controlling interest rates that borrowers pay. The Federal Reserve cut the rate almost to zero at the height of crisis to spur an economic recovery, the result of which as been anemic for the vast majority of Americans, but has bolstered the capital OWNERSHIP portfolios of the already wealthy OWNERSHIP class.
The Federal Reserve raised its key interest rate in order to demonstrate its confidence in the U.S. recovery. Committee officials are expecting the U.S. economy to grow by 2.4 percent in 2016, according to the Federal Reserve's forecast released after the announcement. The "official" unemployment rate is expected to level off at 4.7 percent over the next three years. The underlying support for the main interest rate increase is strengthening economic indicators, namely the increasing job growth, albeit mostly low-wage jobs.
To date, the Federal Reserve's near-zero interest rates have boosted stock (OWNERSHIP participation) speculation for those qualifying for low-cost capital credit and boosted stock prices. The wealthy OWNERSHIP class has been able to buy back stock and further concentrate their OWNERSHIP of corporations. That's IT!
The bond-buying spree over the past six years now poses the
challenge for the Federal Reserve to dispose of the assets on its bloated
balance sheet -- more than four times larger than when the bond buying
began. How much has the balance sheet grown? When the
Great Recession hit, the Federal Reserve's balance sheet was approximately $700
billion dollars, and over the course of the recession and recovery, the asset
purchases the central bank made through its various quantitative easing
expanded the balance sheet to over
$4.4 trillion. Note: "quantitative easing" is a monetary policy in which a central bank purchases
government securities (bonds or other debt) or other securities from the market
exchanges in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with money in an
effort to promote increased lending and liquidity to meet
There is very little to show
for the Federal Reserve lowering the benchmark interest rate (near zero). While
borrowing costs have been lowered to create an incentive for business
corporations to expand, what expansion resulted has not really benefited the
vast majority of American citizens, who are seeing jobs exported to foreign
countries whose economies are being boosted by American corporation investment
Without a populous with earnings to create demand for products and services, there will not be any significant private sector investment in the growth of the economy. Yet, according to an articled entitled "Fed Hikes Interest Rates" by Jon Prior and Ben White on Politico, "growing numbers of Wall Street analysts now believe that the gentle hike of just a quarter of a percentage point will not be necessarily bad news for markets, and could even provide a short-term stimulus if businesses are inspired to invest in new equipment now rather than wait for higher rates in the future." But "markets" are ALL secondary, as they are comprised of assets (stocks, bonds and securities) already OWNED, which are then bought and sold among an already wealthy OWNERSHIP class.Markets have nothing to do with the REAL economy -- the formation of actual capital assets necessary to productivity growth.