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US Fed Raises Interest Rates; Expect 3 More Hikes in 2017

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US Fed has raised the interest rates in a historic decision last night. This was just the second hike in the interest rates since 2008 recession. US Fed FOMC also fore-casted that it may cut the interest rate for three more times in 2017. The faster pace of raising the interest rates shows Fed’s confidence in the recovery of the economy.US Fed Raises Interest Rates; Expect 3 More Hikes in 2017

President-elect Donald Trump has promised several reforms in the US economy. It has also promised to boost growth through tax cuts, spending and deregulation. US Fed’s this rate cut have boosted hope strong growth in 2017.

US Fed has also revised its longer-run target rate to 3%. Initially it projected the rate as 2.9%. The FOMC said that “Market-based measures of inflation compensation have moved up considerably but still are low.”

FOMC also said that “The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation”

In an unanimous vote to hike the interest rates. This rate hike was also on the expected lines. The markets were expecting the rate hike since the September meeting.

Markets also reacted to this US Fed hike. S&P 500 and Dow Jones Industrials Average Index closed in red. US Dollar also rose to its highest levels of last 13 years. The index showed strong gains against the Euro and Yen.

The Treasury yields moved higher also. The 2-year Treasury yield rose to 1.26%. It was also at its highest level since August 2009.

Tom Porcelli, Chief U.S. Economist, RBC Capital Markets hailed hike. He also said that “It’s critical to understand why the dots shifted, if you look at the average of the dots they moved very little. In 2017 they moved 6 basis points. Basically what happened is someone in the lower tier of the dot plot shifted higher, and that’s basically what moved the median. It’s important to note that the average shifted very modestly. It doesn’t indicate that they are looking to ramp it up. Someone who had thought that they are going to have very middling hikes over the coming year has just shifted and that’s basically the bottom line.”
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