US Federal Reserve interest rate rises to 1.75 percent

Life is about to get more expensive for Australians after the US Federal Reserve raised its interest overnight.

The Fed has increased its key short-term rate by a modest quarter point from 1.5 to 1.75 percent.

That figure leapfrogs the Reserve Bank of Australia's rate of 1.5 percent, which economists are tipping will have a dramatic impact on everyone in this country.

Australia's banks are likely to increase rates in step with the US Federal Reserve, independent of what is set by the RBA.

With the US dollar effectively working as the world's currency, interest rate increases over there make money more expensive across the globe.

Australian companies borrow a large amount of money in US currency, especially the banks and those higher costs will be passed through to customers.

The Fed's move will also likely push down the Aussie dollar, making holidays and products from overseas more expensive, including petrol.

The US rate hike marks its sixth since it began tightening credit in December 2015.

It is sticking with the forecast it issued in December for three increases in 2018. But it did boost its 2019 estimate from two hikes to three.

More to come.