US rate hike signals confidence in economy

This article is more than 12 months old

Chia Yan Min, The Straits Times

Jun 16, 2017 06:00 am

The move by the Federal Reserve to raise its benchmark interest rate for the second time in three months is a sign of the central bank's confidence in the stability of the US economy.

The widely anticipated hike was accompanied by a further show of confidence: A description of the US central bank's plans to start reducing its portfolio of more than US$4 trillion (S$5.5 trillion) in bonds later this year.

The Fed had bought the bonds - effectively printing money - and slashed interest rates close to zero in response to the 2008 global financial crisis to keep the economy from collapsing.

The impact on Singapore of the latest rate hike is likely to be mixed.

Higher US interest rates tend to raise borrowing costs here, but a strengthening US economy is good news for exporters.

Market watchers are expecting one more rate hike this year, after four increases since December 2015.