US Federal Reserve raises interest rates by 0.25 pct

ANKARA

The Federal Reserve on Wednesday raised its key interest rate for the first time in seven years.

The move is to be followed by "gradual adjustments," Federal Reserve Governor Janet Yellen said at the press conference that followed the announcement.

This means that further rate rises are to be expected in the coming months.

The benchmark Federal Funds rate was increased to 0.50 percent from 0.25 percent, the Federal Open Market Committee (FOMC) said in a statement.

But four more rate hikes are to be expected in the coming months, Yellen said. This will bring the dollar interest rate up faster than many analysts had expected.

Yellen said the "odds are good" the economy would have ended up overheating had the Fed not taken action.

For future rate hikes, Yellen said that the Fed would "not be locked in" to inflation developments. Inflation is currently at 0.5 percent in the U.S., well below the Fed's target of less-than-two percent.

For now, market reaction is muted. U.S. stocks rose slightly after the announcement. The S&P 500 rose 0.9 percent

The Turkish lira held at about 2.92 to the dollar after the announcement. The Brazilian real rose slightly to 3.88 to the dollar. The euro held at about 1.09 to the dollar.

"But markets will take some time to adjust to the move," commented Attila Yesilada, an economist with Global Source Partners in Istanbul in an interview with Anadolu Agency.

"While there were no surprises, the number of rate hikes announced by the Fed, along with the relative lack of concern about the inflation outlook by the FOMC were unexpected, and may take some time for investors to consider," Yesilada added.

In fact, Yellen made clear in her speech that the FOMC would not necessarily look for rises in inflation when considering future rate hikes.

"I do want to emphasize that while we’ve said gradual, gradual does not mean mechanical, equally timed, equally sized, interest rate changes," she said.

"My guess is that the economy will progress in a manner that is not sufficiently even that we will decide to make evenly spaced hikes," she said.

"I strongly doubt that it will mean equally spaced hikes and it certainly is not the intention of the committee to follow any mechanical formula."

Yellen said that the U.S. economy was growing at a moderate rate, and that the Fed had revised its growth forecast up to 2.4 percent from 2.3 percent for the year.