What does that mean?

One of the key policy tools the Federal Reserve has.

Is this aside what the short term U.

S interest rate will be?

That's called a federal funds rate.

This is the rate that banks and US charge each other when they lend overnight.

Eight times a year, the Federal Open Market Committee meets to decide on the federal funds rate.

This committee is made up of the Fed chair Janet Yellen, six members of the Federal Reserve Board based here in Washington, D.

C.

And five regional Fed presidents from around the country.

The committee decides whether to raise or to lower interest rates in order to slow down or speed up the U.

S economy.

They do this to try and hit the feds objectives of maximum employment and stable prices.

Here's a picture of past movements up in band of federal funds rate.

Would this make my mortgage or credit card bills more expensive, Or possibly when the feds expected to raise or lower the federal funds rate, we can see an increase or decrease in other interest rates.

This can include interest rates charged on credit cards on bank loans, savings accounts, government bonds and mortgages.

There's a couple of wrinkles to bear in mind.

First, the increase in policy rates by the Fed is often already expected.

Here.

We can see how market expectations of the likelihood of a rate increase in December gradually rose during the past few months to reach almost 100% by the time of the meeting itself.

As a result, on the day of the Fed's decision, it's actually not much of a surprise on interest rates on bank loans don't move that much.

They've already adjusted in the run up to the Fed meeting.

Second, many loans are priced not off.

The federal funds rate, which is I mentioned, is an overnight raid there.

Instead, based on longer term interest rates, those longer term rates could move up and down for a variety of other reasons.

For example, following the U.

S election in November, the 10 year rate on the U.

S.

Treasury bonds rose quite a bit.

This is partly due to expectations of the Fed action, but mainly due to an expectation of the new administration in the U.

S.

Would increase the fiscal deficit in the coming years and would need to borrow more alongside this rise in the 10 year Treasury bond rate.

It was also an increase in rates on new mortgages.

Is this good or bad news for the U.

S.

What about for the rest of the world?

You should view the increase in interest rates is relatively good news.

The Fed is raising interest rates because it sees the economy in the U.

S.

Is doing pretty well and getting close to full employment.

The unemployment rate today is 4.6% hasn't been this low since June 2007 on as this picture shows being this low only for a handful of times in the last 70 years.

For the rest of the world, it's a bit of a mix back.

Many countries will benefit from solid growth on low unemployment in US, Consumers here have more money in their pockets, and they spend it on imports produced in other countries.

However, there are exceptions.

Higher interest rates can call strange for those countries that borrowed a lot in the past several years when interest rates were lower.

This is particularly true for those countries that have borrowed in U.

S.