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In the US Federal Reserve meeting, a historic step was taken after key interest rates were raised from record lows on Wednesday. Long hinted at by US Fed Chair Janet Yellen, the move signaled the beginning of the end of a period of extraordinary support for the US economy in the aftermath of the 2008 financial crisis. The Fed raised its federal funds rate – the rate that banks charge each other for overnight loans – from near zero. The modest move increased the range for the funds rate from between zero and 0.25 percent to a range of 0.25 percent to 0.5 percent. Here are top 5 reasons why the US Fed raised interest rates: (In photo: US Federal Reserve Chairman Janet Yellen; courtesy: Reuters)
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1. The US Federal Reserve is duty-bound to maximize employment and keep prices stable. With unemployment at a low 5 percent, Fed officials decided that the economy is strong enough after seven years of record-low rates to withstand modestly higher borrowing rates. (Reuters photo)
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2. Inflation has remained well below the The US Federal Reserve's 2 percent target, a level considered necessary to encourage healthy spending levels. Yellen said Fed officials are ''reasonably confident'' inflation will reach that target as the effects of falling oil prices and a stronger dollar fade. She said the Fed needed to act now before the risk of accelerating inflation becomes a threat to economic growth. (Reuters photo)
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3. The US Federal Reserve is looking to increase, slightly, interest rates on things like credit cards and home equity lines of credit. However, the US Fed's action will probably have 'a very, very small effect', according to an analyst, on rates for homes, cars or college debt, at least in the short run. Those rates aren't directly influenced by the Fed's benchmark rate. (In photo: US Federal Reserve Chairman Janet Yellen; courtesy: AP)
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4. The US Federal Reserve wanted banks to raise rates and that is exactly what happened as less than 30 minutes after the announcement, major banks began announcing that they were raising their prime lending rate from 3.25 percent to 3.50 percent. The prime rate is a benchmark for many types of consumer loans such as home equity loans. Wells Fargo was the first bank to announce the rate hike. (Reuters photo)
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5. If the changes brought by the US Federal Reserve take effect and hiring stays at a healthy pace and prices rise as consumers spend more, then it may well raise rates more quickly. (In photo: US Federal Reserve Chairman Janet Yellen; courtesy: Reuters)
