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.
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.