America’s central bank, the Federal Reserve, concludes a two-day meeting today of its Federal Open Market Committee, the body that sets interest rates.
Should the committee have voted for a rate rise, this would be yet another step towards restoring more usual levels of borrowing costs in the world’s largest economy.
A booming US economy has strengthened the case for winding down the extraordinary monetary measures put in place in December 2008 to prevent the financial crisis and Great Recession from turning into a full-blown slump.
Gradual return to normality
For many years, the target range for the Federal Funds Rate, the main federal interest rate, was zero to 0.25 per cent, and the Fed amassed a $4.5 trillion stock of US Treasury bills and mortgage-backed securities under a quantitative easing (QE) programme. These securities were bought using newly-created money, thus pumping cash into the economy at a critical time.
At the Fed meeting, in March, it voted for the latest in a series of rate rises, this one of 0.25 percentage points, taking the target range from 1.25 per cent to 1.5 per cent to a range of 1.5 per cent to 1.75 per cent.
In September last year, it announced that it would gradually sell the assets acquired under QE back into the market.
Even after last month’s rise, said the Fed, “the stance of monetary policy remains accommodative, thereby supporting strong labour market conditions and a sustained return to two per cent inflation”.