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Federal Reserve raises interest rates for the first time in nearly a decade

The US central bank has raised interest rates by a quarter percentage point and pledged a gradual pace of increases. This marks the end to the near-zero borrowing costs that have prevailed since the US was struck by the worst financial crash in modern times.

Is the US economy ready to cope with interest rate rises?

That is the trillion dollar question – and opinions vary widely. To optimists, the Fed has managed to engineer a respectable recovery that is outshining many other economies. They say a quarter-point increase, as the Fed has announced, would have a negligible impact but is a sensible first step to ensure the Fed stays ahead of inflation.

How fast are rates likely to rise?

Not fast at all – if the Fed is to be believed. The pace of increases is expected to be less than half the tempo of the Fed’s last round of rate rises, which started in 2004.  And the ultimate rate they stop at is likely to be very low too, at less than 4 per cent.

Are US consumers in general prepared for rates to rise?

The burden of household debt has fallen since the crisis, reaching 114 per cent of net disposable income last year, according to OECD statistics, suggesting consumers are better prepared for higher borrowing costs. In addition, a quarter-point hike would still leave rates at historically low levels.