US rates increased to control economy overheating: Fed
The Federal Reserve hiked the interest rates for the first time since 2006 with an aim to prevent constantly overheating the US economy, a US central bank official said.
The Fed increased the interest rates by one-quarter of a percentage point this week, with Chairperson Janet Yellen indicating more gradual rises in rates in the coming times. The gradual process of increase in the rate of interest rate is a representation of mere compromise between the policymakers who have been awaiting a rise in rates for months and those who believe that the economy was at constant risk because of weak inflation.
Senior adviser in international finance on the Federal Reserve Board of Governors, Stijn Claessens, said that the US economy is quite capable of coping with Fed’s raised rate now.
“We raised interest rates because of a situation of economic strength in the US where we feel is we don’t raise it now we are going to have issues down the road in terms of inflation as the economy starts to become stronger and possibly overheats,” he told the ABC during an interview held in Sydney.
Claessens said that the Fed did not worry about the effect of hike in the interest rates on the US or other global organisations having borrowed US dollars as the reserve knows the North American economy is going to be stronger in future. He, however, added that there are certain firms for which the hike would be painful.
“There will be corporates, but it should be small in number, that are just maybe at the margin [and] have financed themselves a little bit too liberally, have too high a leverage and are in that sense in the segments of the economy that have probably overextended themselves,” he claimed. The adviser said that there would be some volatility in the increased rates though the change was indicated long ago.
He admitted that the Fed was not under any kind of pressure to hike the interest rates, but it had done so with regard the US economy.
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