The Federal Reserve announced moments ago that it will raise interest rates for just the third time since the 2008 financial crash.
As anticipated, the Fed announced a 0.25% increase.
The rise follows a similar quarter-percent rise in December last year.
It is expected this will be the first of three anticipated increases for the interest rate in 2017.
That moves the rate up to 0.75% to 1.0% (up from 0.5% to 0.75%).
The rise should come as welcome news to insurers, as the decade of low rates orchestrated by the Federal Reserve had cut into insurer profits.
Companies typically rely on investment bonds fueled by customer premiums to drive much of their profits, favoring high-quality, long-term corporate bonds – as the Fed began driving down rates to improve the economy following the 2008 crash, however, those profits tanked.
The 2017 rises should correspond to investment portfolio growth.
Following the rate rise in December, Fed chair Janet Yellen suggested 2017 could see three rate rises, on the back of “the progress the economy has made.”
The economy has been strengthening for the past 30 quarters and expectations are that the progress will continue. Unemployment figures have remained low and consumer spending is up.
These pencilled in predictions are subject to change, of course. There were four rate jumps predicted for 2016, but only the one in December eventuated.
The rate rise can be attributed to a number of factors spurring the American economy.
An array of evidence suggests the US jobs market is fundamentally healthy or nearly so. Hiring over the past two months has averaged 237,000, up from last year’s monthly average of 187,000.
In addition, the number of people seeking first-time unemployment benefits – a rough proxy for the pace of layoffs – reached a 44-year low two weeks ago.
Average hourly pay leapt 2.8% year over year in February, a decent gain though slightly below historical averages. In a healthy economy, wages typically rise at a roughly 3.5% annual pace.
And, at the start of 2017, minimum wages rose again in 19 states, a trend that might have helped raise pay last month.
With gains in hiring and pay, along with higher consumer and business confidence since the November election, spending and investment should lift in the coming months and further accelerate economic growth.
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