Fed raises interest rates to 2.75 percent

Yesterday, the Federal Reserve raised its target for the federal funds rate by 25 basis points to 2.75 percent. In its statement, it said that while "longer-term inflation expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident". Interest rate increases are "likely to be measured".

No doubt, the Federal Reserve would have been influenced by the latest producer price index, which was also released yesterday by the Labor Department. It showed that wholesale prices rose 0.4 percent in February, a slight increase from the 0.3 percent rise in January. Core PPI, which excludes food and energy, gained 0.1 percent, a sharp fall from January's 0.8 percent rise. Food prices rose 0.8 percent in February, while energy prices rose 1.4 percent.

Energy prices have continued to rise in March, although yesterday, oil prices did fall. NYMEX light sweet crude for May delivery fell US$1.43 to US$56.03 per barrel.

In other news yesterday, China's central bank governor Zhou Xiaochuan said the People's Bank of China may raise interest rates again in the second quarter of this year.

My quick take on all this is that if interest rates could rise in inflation-free Singapore, there is little chance of it failing to rise elsewhere.