On Wednesday it was widely expected that the Federal Reserve
would raise US interest rates by 0.25%. Though this is a small rate hike and the markets seems to have already priced this move into the markets. This move by the Federal Reserve
is a signal that the US economy seems to be on the right track, after 7 years on from the 2007-08 financial crisis, with US interest rates unchanged at almost 0%. At the press conference after the release of the news of the rate hike, Janet Yellen stated:
“This action marks the end of an extraordinary seven-year period during which the federal funds rate was held near zero to support the recovery of the economy from the worst financial crisis and recession since the Great Depression.”
Janet Yellen also hinted at further rises in the future.
“with gradual adjustments in the stance of monetary policy”.
The Federal Reserve
seems to have plans to raise interest raise four times by increments of 25 basis points in 2016, some analysts believe this be over ambitious and believe the Federal Reserve
will possibly raise rates twice next year at most. Figure 1 is a dot plot chart that Janet Yellen released during her interest rates speech.
|This chart is based on the Federal Reserve members assessment of the future path of policy that each member deems most likely to foster outcomes for economic activity and inflation that best satisfy his or her interpretation of the Federal Reserve’s dual objectives of maximum employment and stable prices.
Each shaded circle indicates the value (rounded to the nearest 1/8 percentage point) of an individual participant’s judgement of the midpoint of the appropriate target range for the federal funds rate or the appropriate target level for the federal funds rate at the end of the specified calendar year or over the longer run.
Stock indices around the world were up on the release of the news, also the dollar and many individual company’s stock prices were also up. However, commodities continued to slump on the release of the news.
Over in the UK rates seem like they will not be raised this year, but there is a consensus amongst some analyst that we could see rates raised by the BoE
sometime in May and/or November 2016.