The Federal Reserve’s decision to raise interest rates was long overdue. The US economy is in a good state and more solid than the European one. I expect at least two more raises this year.
There is a significant risk that the US central bank will lift rates at too slow a pace, which would increase the risks to financial stability.
The prospect of higher interest rates in the US puts the Europan Central Bank under pressure not to prematurely end its expansive monetary policy stance. Long-term interest rates in the euro area have already rise due to the tightening in the United States, which could hamper the recovery of the euro area economy.
Today’s rise in US interest rates could further exacerbate the conflict between president Trump and the Federal Reserve and harm the central bank’s credibility.