Federal reserve expected to raise US interest rates

THE US Federal Reserve is expected to increase interest rates for the first time in more than four years when the Open Market Committee meets next Wednesday.

The potential impact on the economy and burgeoning US housing market is expected to limit the increase to 0.25% but as inflation begins to take hold, the rise is expected to be one of many over the coming year.

The US economy continues to thrive. Just yesterday, data from the Commerce Department revealed a surge in new home sales by 14.8% in May to an annual rate of 1.369 million new homes, compared with 1.192 million in April.

Interest rates could double from the current historic low of 1%, which US lenders have enjoyed since June 25, 2003, over the next 12 months.

Higher interest rates tend to slow economic activity as the cost of borrowing increases, while lower interest rates stimulate economic activity as money is cheaper.

Ulster Bank economist Niall Dunne said the lack of data releases this week was lulling the market into a false sense of security.

“Well the storm front is edging ever closer. Next week we’ll likely see the first US rate rise in five years, the monthly release of the US non-farm payroll report, and from a geopolitical-risk perspective, the official handover of power in Iraq is also scheduled,” Mr Dunne said.