Post by The Big Daddy C-Master on Dec 17, 2015 7:19:18 GMT -5
The market is of course going up quite preditably.
www.investopedia.com/articles/investing/121615/expected-fed-raised-interest-rates.asp
As Expected, The Fed Raised Interest Rates
Almost a decade after it first began decreasing rates at the beginning of an economic slowdown, the Federal Reserve raised its benchmark rates to between 0.25 and 0.50 percentage points today. At the same time, the agency slightly revised its economic growth forecast for next year, predicting growth figures of 2.4% (an increase of 0.1 percent) and an unemployment rate of 4.7% (a decrease of 0.1 percent) for the economy next year.
"The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective. Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent," the Fed said in its statement. (See also: Timing of the Fed Interest Rates Hike.)
The First Increase in Nearly a Decade
Today's raise caps seven years of near-zero rates intended to boost consumer spending and lift the economy out of recession.
The agency also stated that it expects economic conditions will "evolve in a manner that will warrant only gradual increases in the federal funds rate." This is in line with its stance of a gradual lift-off. Most analysts expect the Fed to increase the rate three to four times next year and twice in the coming year. At an average increase of 0.25 percentage points, that amounts to a 1% interest rate at the end of next year. According to Fed policymakers, the rate will increase to 2.4% at the end of 2017 and 3.3% by 2018 end.
However, Capital Economics, a research firm, differed from these projections. "Our view is still that inflation will rebound much more rapidly than the Fed believes in the first half of next year, as the deflationary pressure from lower commodity prices and the surge in the dollar begin to fade, while domestic price pressures continue to build. As a result, we expect the fed funds rate to reach almost 2% by the end of next year," the firm's analysts wrote in a note immediately following the announcement. (See also: Understanding Interest Rates, Inflation And The Bond Market.)
The Fed's announcement of an increase in interest rates has been all but certain. This helped the markets react in a positive fashion to the increase. Heading into the announcement, the CBOE volatility index was lower and stock futures were higher. Immediately after the announcement, stocks edged half a percentage point higher.
The Cons
Even as it provides a moderate boosts to savings, the rate increase comes with riders attached to it. For one, the dollar, which has been trending higher in recent months, is expected to inch even higher in the coming months. A strong dollar will weigh badly on profit margins for multinational corporations, which earn most of their profits abroad. The rate increase is also expected to roil emerging markets that are dependent on the U.S. economy for their exports in the short-term.
The Bottom Line
Public knowledge about the Fed's intentions has helped allay fears about the effects of a rate increase on the U.S. economy. Given the modest percentage amount, the increase should not affect markets immediately. However, it signals the start of a rising interest rate era.
www.investopedia.com/articles/investing/121615/expected-fed-raised-interest-rates.asp
As Expected, The Fed Raised Interest Rates
Almost a decade after it first began decreasing rates at the beginning of an economic slowdown, the Federal Reserve raised its benchmark rates to between 0.25 and 0.50 percentage points today. At the same time, the agency slightly revised its economic growth forecast for next year, predicting growth figures of 2.4% (an increase of 0.1 percent) and an unemployment rate of 4.7% (a decrease of 0.1 percent) for the economy next year.
"The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective. Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent," the Fed said in its statement. (See also: Timing of the Fed Interest Rates Hike.)
The First Increase in Nearly a Decade
Today's raise caps seven years of near-zero rates intended to boost consumer spending and lift the economy out of recession.
The agency also stated that it expects economic conditions will "evolve in a manner that will warrant only gradual increases in the federal funds rate." This is in line with its stance of a gradual lift-off. Most analysts expect the Fed to increase the rate three to four times next year and twice in the coming year. At an average increase of 0.25 percentage points, that amounts to a 1% interest rate at the end of next year. According to Fed policymakers, the rate will increase to 2.4% at the end of 2017 and 3.3% by 2018 end.
However, Capital Economics, a research firm, differed from these projections. "Our view is still that inflation will rebound much more rapidly than the Fed believes in the first half of next year, as the deflationary pressure from lower commodity prices and the surge in the dollar begin to fade, while domestic price pressures continue to build. As a result, we expect the fed funds rate to reach almost 2% by the end of next year," the firm's analysts wrote in a note immediately following the announcement. (See also: Understanding Interest Rates, Inflation And The Bond Market.)
The Fed's announcement of an increase in interest rates has been all but certain. This helped the markets react in a positive fashion to the increase. Heading into the announcement, the CBOE volatility index was lower and stock futures were higher. Immediately after the announcement, stocks edged half a percentage point higher.
The Cons
Even as it provides a moderate boosts to savings, the rate increase comes with riders attached to it. For one, the dollar, which has been trending higher in recent months, is expected to inch even higher in the coming months. A strong dollar will weigh badly on profit margins for multinational corporations, which earn most of their profits abroad. The rate increase is also expected to roil emerging markets that are dependent on the U.S. economy for their exports in the short-term.
The Bottom Line
Public knowledge about the Fed's intentions has helped allay fears about the effects of a rate increase on the U.S. economy. Given the modest percentage amount, the increase should not affect markets immediately. However, it signals the start of a rising interest rate era.
