US Federal Reserve set to make interest rates decision

Policymakers at the US Federal Reserve will decide on interest rates today amid widespread expectations for the first hike in nearly a decade.

Federal chairwoman Janet Yellen has signalled recently that a rise in US rates is a near certainty this month after America's central bank surprised markets in September when it voted against a change.

A rise in US rates would be the first since June 2006 and there are fears it will trigger market disruption, coming at a time when the global economy and China's growth have been slowing.

But the move would be a sign that the world's biggest economy is back on track after the financial crisis and ready to wean itself off the financial life support of record low rates.

US rates have remained at a target range between zero and 0.25% since December 2008.

There have been encouraging signs for the US economy in recent months, with unemployment falling to 5% from a peak of 10% in 2009 and inflation beginning to creep up, with figures showing a bigger-than-expected rise in prices of 0.5% in the year to November.

Stock markets have been turbulent over December, with the FTSE 100 Index closing on Monday at its lowest level since December 2012 amid a commodity price rout that saw the cost of oil slump again.

Concerns over a US interest rate rise have compounded the falls, but markets rallied on Tuesday ahead of the Fed's decision in the hope that an increase would at least provide stocks with some certainty.

Russ Mould, investment director at AJ Bell, said: "Global stock markets are so expectant of the first interest rate increase for 10 years that any failure to act is likely to do more damage to market sentiment than any hike in borrowing costs."

He added: "Any decision by Yellen to hold fire could be interpreted as a sign of concern over the underlying strength of the US economy and that is unlikely to be well received by markets."

Stocks fell sharply in September after the surprise no-change decision and many market experts believe investors would rather see the Fed make the move sooner rather than later and begin returning rates to more normal levels.

But the decision on US rates - due at 7pm UK time - comes amid a worrying global backdrop and there are concerns that a rise will compound the slowdown in the world economy.

A hike would also see US and European monetary policy move in opposite directions.

The European Central Bank earlier this month announced a cut to overnight deposit rates from minus 0.2% to minus 0.3% and extended a 60 billion euro (£43 billion) stimulus programme by six months.

Meanwhile the Bank of England voted to keep rates on hold at 0.5%, where they have been for more than six years, with many forecasting a rise will not come in the UK until well into 2016.