Produced by Ben Marino. Footage by Reuters and Getty.
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America's Central Bank proved an aggressive beast during the crisis, undertaking emergency measures that lead to its balance sheet swelling to 4.5 trillion dollars as rates were taken to unprecedented lows. Ever since Janet Yellen took the helm of the Federal Reserve in February, 2014, however, she has been noted for her caution. Exit from extraordinary monetary policy has been glacial, with only two ginger upward steps in rates taken over the past two years. Now, however, Ms. Yellen is upping the ante.
On Wednesday, the Federal Reserve chair announced a quarter point increase in interest rates, the third hike since the current rate hiking cycle began. She also signalled the pace of rate hikes is likely to accelerate from here.
Today, the Federal Open Market Committee decided to raise the target range for the federal funds rate by one quarter percentage point, bringing it to 3/4 to 1%.
The reason is a US economy that is firing on an increasing number of cylinders. The expansion is the third longest on record, hiring has never been uninterrupted for so long, the jobless rate is 4.7%-- less than half its crisis era highs-- and inflation is starting to make tentative progress towards the Fed's 2% target. In addition, the US stock market has been rocketing, pushed higher in part by hopes for fiscal stimulus led by President Donald Trump leading to looser financial conditions and giving policymakers extra confidence that they should start removing the punchbowl.
An absence of major crises abroad is also helping to boost confidence at the Fed. The outlook from here is likely to be further rate hikes in 2017, but also an increasingly intense debate about how the Fed should unwind its vast holdings of government bonds and mortgage backed securities. Central banks elsewhere, most notably the European Central Bank, are also starting to talk about taking the foot of the monetary accelerator.
For the biggest of the advanced economies, the unwinding of the great monetary policy experiments of the crisis era is finally gathering momentum. Sam Fleming, Financial Times, Washington D.C.