The Business Times

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Published Thu, Dec 17, 2015 · 09:50 PM
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WELL, the Federal Reserve has finally gone and done it. It raised short-term rates by 25 basis points, and Fed officials predicted four more similar hikes next year. That will bring rates to a range of 1.25 per cent to 1.5 per cent.

The era of the much-discussed zero interest rate policy, or ZIRP, has come to an end. First, the immediate impact. Financial markets had long ago decided that this sort of modest rate hike was inevitable - Thursday's announcement adds little new information. Unsurprisingly, markets did not dive in response (though recent troubles in the junk bond market might be related to anticipation of the Fed's decision).

That the Fed met expectations of a rate increase is probably a positive signal for the economy, since it indicates confidence in the recovery. And a rate of 1.25 per cent or 1.5 per cent would give the Fed room to cut rates in respo…

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