Federal Reserve raises interest rates for first time since 2006

The US Federal Reserve has raised interest rates for the first time in nearly a decade.

The United States central bank’s policy-setting committee made the landmark announcement in a policy statement, adopted unanimously on Wednesday.

The benchmark interest rate was hiked by a quarter of a percentage point to between 0.25 percent and 0.50 percent from almost zero.

The Federal Reserve, which has been weighing up the idea since autumn, made the move based on a prediction that the economy is on a path to accelerate in 2016.

“The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise over the medium term to its 2 percent objective,” the statement said. “A range of recent labor market indicators, including ongoing job gains and declining unemployment, shows further improvement and confirms that underutilization of labor resources has diminished appreciably since early this year.”

As the announcement was made, the Dow Jones industrial average rose 0.44 percent, while the S&P 500 and the Nasdaq Composite gained 0.59 and 0.6 percent respectively.

“In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate,” the Fed added.

The promise of a “gradual” approach towards the increases is perceived as a balance among the policymakers that have been insisting on the move and the ones that are more conservative about the economic situation in the country.