Where were you when the U.S. Federal Reserve announced, at 2 p.m. Washington time on December 16, 2015, that it would raise its benchmark interest rate for the first time in nine years? Some notable obsessives will be able to answer that question if their grandchildren ever ask. In the front row at the press conference, two chairs to the left of the guy from the Wall Street Journal! Normal people have likely already forgotten, if they were paying attention at all. Fed chair Janet Yellen had done such a good job of telegraphing the central bank’s intentions that even Harvard economist Lawrence Summers—the highest profile advocate for leaving America’s benchmark lending rate at zero--stopped trying to sway opinion. It was a day for the history books, but the economic actors of the present had moved on.
One of the arguments for lifting interest rates was that the waiting was hurting confidence. Investors responded to the Fed’s quarter-point increase as if a weight had been lifted. Stock markets rose in North America after the decision. They rose in Asia and they rose in Europe. Some feared the Fed’s increase would trigger an exodus of capital from emerging markets. According to this view, previously adventurous investors would be drawn back to the safety of U.S. debt, now that it promised a yield greater than a pittance. But those who wanted out of places such as Indonesia and Brazil have already left. Some currencies of emerging-market countries rose against the dollar. In Canada, the loonie was weaker, but probably because oil prices slid. Bond yields were a little lower, reflecting the divergent paths for benchmark interest rates in the U.S. and Canada.
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