The Federal Reserve announced it will begin to raise interest rates this week, a move that signals the institution that controls the country's monetary policy has confidence about the economic prospects of 2016.
Its the first time the Fed will raise interest rate above 0 percent since the recession. This means the Fed will reduce the amount of currency flowing through the economy, in an effort to reduce lending and avert financial bubbles like the one that caused the mortgage crisis in 2008.
The Fed plans to raise its interest rate to between .25 and .5 percent immediately, and will continue to gradually raise the rate as conditions improve.
Although it will make money tighter on Wall Street, the markets have been reacting favorably. The Dow Jones index jumped 300 points Tuesday in anticipation of the decision and jumped an additional 100 points within an hour of the announcement.
According to CNN, theres a perception that the Fed has a crystal ball into the economys future and the rate hike gives investors confidence about the economy in 2016. Since the decision was widely expected, had the Fed chosen to refrain, it would have made Wall Street think that Fed Chairwoman Janet Yellen knew something they didnt.
However, Fortune magazine reported stock prices are likely to begin dropping as excitement wears off. For consumers, interest rates on mortgages are likely to increase as banks tighten lending. However, this is good news for those with money in the bank, as the interest payments to savers will increase.
According to The Associated Press, the decision is unlikely to have a major impact on consumers. Mortgage rates are likely to rise half a percent in the next year, and interest on credit cards and car loans will rise very little as well.
Jeffrey Gundlach, CEO of investment firm DoubleLine Capital, told CNBC that the decision could be a mistake basing a rate hike on philosophic reasons rather than economic prospects. He believes the increase is a misguided attempt to follow through on a promise Yellen made in summer.
"What's the purpose of raising rates today with all of these indicators weaker than they were three months ago and you gave the reason for not raising rates primarily that these indicators were weaker?" he said.
Inflation has been lower than the Feds goal of 2 percent annually and Matt OBrien of The Washington Post said if growth continues to lag, its likely that the rate hike could be a temporary one, forcing the Fed to drop rates back to 0 percent within a year or two.
Yet in its press release announcing its decision, the Fed said it expects inflation to rise to its 2 percent target soon as the "transitory effects" of low energy and import prices dissipate and the labor market strengthens.
Its the first time the Fed will raise interest rate above 0 percent since the recession. This means the Fed will reduce the amount of currency flowing through the economy, in an effort to reduce lending and avert financial bubbles like the one that caused the mortgage crisis in 2008.
The Fed plans to raise its interest rate to between .25 and .5 percent immediately, and will continue to gradually raise the rate as conditions improve.
Although it will make money tighter on Wall Street, the markets have been reacting favorably. The Dow Jones index jumped 300 points Tuesday in anticipation of the decision and jumped an additional 100 points within an hour of the announcement.
According to CNN, theres a perception that the Fed has a crystal ball into the economys future and the rate hike gives investors confidence about the economy in 2016. Since the decision was widely expected, had the Fed chosen to refrain, it would have made Wall Street think that Fed Chairwoman Janet Yellen knew something they didnt.
However, Fortune magazine reported stock prices are likely to begin dropping as excitement wears off. For consumers, interest rates on mortgages are likely to increase as banks tighten lending. However, this is good news for those with money in the bank, as the interest payments to savers will increase.
According to The Associated Press, the decision is unlikely to have a major impact on consumers. Mortgage rates are likely to rise half a percent in the next year, and interest on credit cards and car loans will rise very little as well.
Jeffrey Gundlach, CEO of investment firm DoubleLine Capital, told CNBC that the decision could be a mistake basing a rate hike on philosophic reasons rather than economic prospects. He believes the increase is a misguided attempt to follow through on a promise Yellen made in summer.
"What's the purpose of raising rates today with all of these indicators weaker than they were three months ago and you gave the reason for not raising rates primarily that these indicators were weaker?" he said.
Inflation has been lower than the Feds goal of 2 percent annually and Matt OBrien of The Washington Post said if growth continues to lag, its likely that the rate hike could be a temporary one, forcing the Fed to drop rates back to 0 percent within a year or two.
Yet in its press release announcing its decision, the Fed said it expects inflation to rise to its 2 percent target soon as the "transitory effects" of low energy and import prices dissipate and the labor market strengthens.