US Federal Reserve raises rates
The Fed moves to increase interest rates because the US economy is still strong.
The US Federal Reserve has decided to raise rates for 2019 and Wall Street is not pleased. Stocks have already fallen after the US central bank has voted to increase interest rates.
The Fed gradually increases rates
The Fed has decided to raise rates for the fourth time this year. The bank has increased its target for benchmark funds from 2.25 to 2.5%.
In its winter meeting, the US Federal Open Market Committee (FOMC) noted that some increases in rates will be needed as the economy is still steady.
'The Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2% objective over the medium term,’ said the statement.
Defying Trump and looking to the future
Though US President, Donald Trump, demanded on Twitter that the Fed keep rates neutral to help the stock market, Federal Reserve Chair, Jerome Powell, stayed independent, only looked at economic factors, and raised rates.
Powell denied that he was influenced by Trump's tweets about the Fed.
'Nothing will deter us from doing what we think is the right thing to do,' said Powell.
The news is a mixture of hawkish rate increases and dovish look at inflation over the next few years. The Fed projects to only raise inflation 2% above target in 2020 and 2021.
Financial experts like,Quincy Krosby, from Prudential Financial said the economy has to remain bullish to justify the two rate hikes planned for 2019.
‘The Fed still sees a solid underpinning for the economy based on the numbers and still sees the viability of two rate hikes next year. The market needs, for the Fed's statement to prove correct, an unequivocally strong parade of strong economic data for that forecast to hold’, said Krosby.
Why Wall Street hates rate hikes
While the Fed may feel that the economy can handle rate increases, the US stock market disagrees. Growth in interest rates could lead to bigger mortgage interest rates, which can depress the housing market and further slow down the economy next year. It remains to be seen how this latest move will influence Wall Street in the future.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
See an opportunity to trade?
Go long or short on more than 16,000 markets with IG.
Spread bet and trade CFDs on our award-winning platform, with low spreads on indices, shares, commodities and more.
Live prices on most popular markets
You might be interested in…
Find out what charges your trades could incur with our transparent fee structure.
Discover why so many clients choose us, and what makes us a world-leading provider of spread betting and CFDs.
Stay on top of upcoming market-moving events with our customisable economic calendar.