Fed raises interest rates as expectedBy Kelly Sanders Mar 17, 2017
The decision to raise rates from 0.75 percent to 1 percent followed a previous quarter-point increase in December, when the central bank indicated that it planned three total increases in 2017.
Despite the contention that the Fed's rate increase was dovish, NatWest's Blake Gwinn and team don't characterize it as a "dovish hike".
Economists expect the Fed to raise rates gradually two to three more times in 2017.
The S&P 500 gained 0.8% to 2,385.26 today, while the Dow Jones Industrial Average advanced 112.73 points, or 0.5%, to 20,950.10.
Rising US rates have global repercussions especially for developing countries most vulnerable to higher dollar borrowing costs.
"If the Fed doesn't deliver the rate rise, it sure will shock the markets and cause the dollar to collapse". "However, the fed has now added weight to the precedent of one rate hike every other meeting", he added.
The aftermath of the Fed's policy meeting is nevertheless likely to provoke renewed volatility for the "Greenback", with investor focus turning to commentary from Chair Janet Yellen and the updated policymaker forecasts.
So, what does a higher interest rate actually mean?
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According to WalletHub, a consumer research group, the rate hike will add $1.6 billion in finance charges for USA credit card holders for 2017.
"We're closing in, I think, on our employment objective, we're coming closer on our inflation objective ... it looks to us to be appropriate to gradually raise the federal funds rate to neutral", Yellen said.
Backing the United States rate hike were encouraging economic numbers.
The bank's chief currency strategist Richard Grace points out that Australia is in an unusual position: it's current account deficit is, for the first time in decades, shrinking to less than 1 per cent.
On the inflation front, consumer prices increased a bit more than expected, pushing the annual rate to 2.7 percent from the 2.5 percent rate in January. This type of behavior is indicative of a lack of liquidity in the stock market, or in other words less money sloshing around as investors hold more cash. Steady hiring has brought down the unemployment rate to 4.7 percent, while the Fed's preferred measure of inflation has been moving closer to the central bank's preferred target of 2 percent.
Talking to BR Research, Gohar Rasool Head of International Sales at Intermarket Securities was of the view that the Fed rate hike has come as per market expectations and is likely to be a non-event for the rupee and stocks both.
"The word on the street is interest rates are going up and the fed keeps hiking the rates, the truth is the rates did go up for mortgage loans after the election but they are still good", said Worthen.
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