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World Markets React Positively to Fed Interest Rate Hike

  • VOA News

Federal Reserve Chair Janet Yellen's Washington news conference is shown on a television screen on the floor of the New York Stock Exchange, Wednesday, Dec. 16, 2015.

Federal Reserve Chair Janet Yellen's Washington news conference is shown on a television screen on the floor of the New York Stock Exchange, Wednesday, Dec. 16, 2015.

Global investors Thursday welcomed the U.S. central bank's decision to raise interest rates for the first time since the 2008 global financial crisis.

In a long-expected move, the Federal Reserve Wednesday raised its main interest rate by a quarter of a percentage point, pushing it up from near zero where it has been for seven years.

Federal Reserve chair Janet Yellen said policy makers decided to increase the rate as the U.S. economy expands "at a moderate pace." She said future rate hikes would be "gradual."

The rate increase apparently is being seen as a sign of confidence in the U.S. economy by many in Asia, where stock markets surged on Thursday.

Japan's Nikkei jumped 2 percent and Hong Kong's Hang Seng rose nearly a percent. South Korea, Australia, China, and Taiwan, and New Zealand also saw gains.

In Europe, markets also reacted favorably, with Paris and Frankfurt both shooting up more than 2 percent, and London gaining 1.6 percent, just after opening.

The dollar also made slight gains against most other major currencies.

"What is clear is that equity markets are taking the rate hike as a positive," said Angus Nicholson, a Melbourne-based market analyst at the IG Group.

But investors will be watching the Fed closely for further moves, said Nicholson, who notes "historically the second and third rate hike in the cycle has been more negative for equity markets."

China, the world's second-largest economy behind the U.S., responded cautiously to the Fed's decision.

"The interest rate hike by the Federal Reserve will have some direct or indirect impact on China's international business and trade," said China's Commerce Ministry spokesman, Shen Danyang.

"As for how much the impact will be, we will have to do a specific analysis depending on the circumstances," he added.

China has experienced a steady economic slowdown since 2010, following decades of extremely rapid growth. The U.S. interest rate hike may complicate efforts to halt that slowdown.

Partly, that is because if China wishes to cut its own interest rates to stimulate its economy, investors may move their yuan-based assets out of the country, hurting China's economy.

Federal Reserve officials had previously cited the slowdown in China as a main reason that prevented them from raising interest rates earlier.

The Fed cut the rates to a record low range between zero and a quarter of a percent during the 2008 financial crisis in a bid to support economic growth. Economists say higher rates would tend to slow growth and make it less likely that inflation will rise sharply and harm the economy.

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