The US Federal Reserve has, as expected, announced the first increase in US interest rates in over three years. The quarter of a percentage point increase announced yesterday is seen as the first step in a series of graduated moves that could see rates on the other side of the Atlantic rise by up to 3.5 percentage points over the next 18 months.
It signals the end of a sustained period of historically low global interest rates which saw US rates decline from 6.5 per cent to 1 per cent in the face of the most prolonged economic downturn since the era of the Great Depression.
While yesterday's rise will almost inevitably lead to higher borrowing costs here, the Federal Reserve's decision is at least confirmation that the spluttering recovery in the US economy has taken hold. US economic news, however, remains a mixed bag and the Federal Reserve is expected to take a measured approach to increasing rates, with a series of small hikes predicted.
At least one more similarly-sized hike in US rates is due before the end of the year, and the Federal Reserve will be anxious not to move too aggressively ahead of the November election for fear of being seen to affect the outcome.
There is a risk that in its efforts to appear neutral the Federal Reserve will hold its hand unduly and fail to stem inflation. Mr Greenspan, the chairman of the Federal Reserve, will have to tread carefully.
European rates fell in tandem over the last four years from 4.75 per cent to their current level of 2 per cent and the European Central Bank is expected to follow the Federal Reserve back up, taking into account the more muted recovery in the Euro zone.
The first rise in European rates is not predicted until the final quarter of the year.
Commentators are increasingly bullish about the Irish economy and there is no doubt that it can live with higher interest rates. Most recently, the Economic and Social Research Institute predicted that the Republic's economy will grow by 4.6 per cent this year and 5.6 per cent next year. Inflation also remains low despite recent pressure on oil prices.
A tightening of interest rates would have the welcome effect of dampening the demand on consumer borrowing and the related upward pressure on house prices. This issue has been flagged by the ESRI. Figures released by the Central Bank yesterday show that demand for mortgages continues, with the annual rate of growth in mortgage lending at a record 27.5 per cent. Equally, the significant debts run up by Irish consumers during the last four years of cheap credit means that higher rates will hit borrower pockets hard.
But this is some way down the road. The symbolic nature of yesterday's increase should not cloud the fact that interest rates here and elsewhere remain extremely low and are likely to remain so in the medium term.