Reflections

A Globally Fraught Fed Rate Hike

Dec 14, 2016 | 23:35 GMT
A Globally Fraught Fed Rate Hike
The effects of monetary policy decisions that emanate from the Federal Reserve headquarters in Washington do not just stop at the United States' borders.
(KAREN BLEIER/AFP/Getty Images)

Today, the Federal Reserve raised the U.S. benchmark interest rate for the first time in a year, and only the second time in a decade. That the move had been widely expected and the increase was held to a quarter of a percentage point does not detract from its significance. The dollar's central role in the global economy means that ripples from Fed policy shifts reach all countries. The central bank's most recent interest rate hike in December 2015 sparked a dramatic reaction in international capital markets as investors sold off risky assets over the next two months. Signals by the Fed that a further rate hike was not imminent stopped the capital flight to safer havens. The chances of a repeat of that drama as 2017 dawns appears to be somewhat lessened by an overall improvement in the global economic outlook and less volatile markets. That said, all of...

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