US Fed raises interest rates by 0.25 percent

The US Federal Reserve has raised interest rates by 0.25 percent, its first increase since 2006. This was announced yesterday after a two-day policy meeting between officials with stocks rallying in early trading in Europe and the US. The rate, which stands at 0.5 percent after the increase, was kept the same through out the global credit crunch so that financial institutions could borrow cheaply and in turn allow them to lend at lower rates. Rates in the US have been at near-zero since 2008.

The US central bank cited as the reasons for its action



increased household spending and investment by business, along with a continued low rate of inflation. The bank also raised its projection for its economic growth next year slightly, from 2.3 percent to 2.4 percent. That suggests the bank does not think the rate increase will damage growth. US share markets jumped in response.

The move is likely to cause ripples around the world, and could increase pressure on the UK to raise rates. It could also mean higher borrowing costs for developing economies, many of which are already seeing slow growth.