On Wednesday, the Federal Reserve announced the first rise in US interest rates since 2006. Back then, “Thefacebook” had just been launched by a barely known student at Harvard named Mark Zuckerberg. It was that long ago. The question as to whether the Fed has done the right thing is going to linger for a while. Importantly for us here in the UK, now that the Fed has moved, does this mean the Bank of England is likely to follow sooner than expected?
Janet Yellen, the Chair of the Federal Reserve, was at pains to emphasise that the central bank would tread a very gradual policy path. The governors of the Fed expect interest rates to rise by about 1 per cent—or 100 basis points—between now and the end of 2016, but this is a hostage to events, the economy, and especially to inflation. The Fed’s view is that the economic expansion will continue at around its current pace, low unemployment could fall even further, and inflation will rise to about 2 per cent over the medium term.