Anticipated Rate Hike Signals Correction

SAN FRANCISCO—The US economy passed a major psychological threshold last week as the Federal Reserve closed the door on the extraordinary measures put in place to combat the financial crisis. With the quarter-point increase of its overnight lending rate, the Fed signaled that the economy has finally returned to normal operating levels. Though some sectors still face headwinds, broader economic measures including employment, retail sales and even home prices have largely returned to healthy performance standards, says John Chang, ‎first vice president of research services at Marcus & Millichap. The Fed reiterated that it will maintain a gradual pace of rate increases, aligning actions with key indicators such as labor market conditions, inflation and international developments.

While short-term lending will be influenced by the Fed’s move, long-term interest rates will face little upward pressure in the immediate future. As 2016 progresses, the cost of long-term debt could see upward pressure, but this will be influenced as much by domestic and international confidence as by the central bank’s actions, says Chang.