Will Bartleet, CIO and Portfolio Manager of Pacific Multi-Asset
Surprise! The Fed raises rates expected
Just three years ago, the Federal Reserve predicted that by March 2017, interest rates in the United State would have been hiked 11 times and stand at 3%. The reality has been just 3 rate rises to 1%. Disappointing growth and subdued inflation has dissuaded the committee from increasing rates at a faster pace.
This year, the Fed indicated three rate rises and so far, they are on track to deliver, with a 0.25% rate rise confirmed last night. Some market observers had thought that the Fed might upgrade its forecast for growth or steepen its path of rate rises; they will have been disappointed by Yellen’s calming words.
- Interest rates in the US increased by 0.25% to 1%
- The Fed expects interest rates to be 1.5% at the end of 2017 and 2.25% at the end of 2018
- The Fed believes inflation is moving towards it’s 2% target
- Janet Yellen’s simple message “the economy is doing well”
Implications for markets:
- US interest rates are likely to continue to move higher but at a slow pace
- Very recent fears in the market that the Fed is “behind the curve” have been over-done
- The dollar rally is likely to pause
Implications for savers:
- Interest rates around the world are likely to remain below inflation for the foreseeable future, so savers who keep their money in the bank will continue to get poorer in real terms.
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