Quick view: Fed signals a faster pace of rate hikes

15/12/2016

​The rate setting committee of the US Federal Reserve (Fed) met on Wednesday 14 December and delivered the first interest rate move since last December. Henderson’s Mitul Patel, Head of Interest Rates, provides a brief reaction to the outcome of the meeting and the news conference that followed.


The US Federal Open Market Committee (FOMC) raised rates by 25 basis points (bp) yesterday as was broadly anticipated by the markets. The first move in interest rates since December last year was accompanied by a projection for further rate hikes next year and a faster and tighter monetary path than was expected in September. There were minor tweaks to forecasts for growth, unemployment and inflation, with some members starting to factor in potential fiscal stimulus that the future president might deliver. Should Trump deliver a material fiscal easing, the Federal Reserve may have to tighten monetary policy much quicker than currently signalled.

Markets so far have interpreted Wednesday’s statement as more hawkish. Treasury yields rose, led by yields on bonds with shorter maturities, reflecting the potential for more rate hikes than previously expected. The stock market came under some pressure, as the tightening in monetary policy may offset some of the optimism around an improved growth outlook. The US dollar appreciated across the board and investors should remain vigilant to the potentially negative impact of a stronger currency.

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