“The Fed is more aggressive in its forecast of interest rate rises than the market, but so are they in their expectation of rising inflation”.
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In Tokyo trading, Toyota rose 2.02 percent to 7,766 yen, Nissan gained 1.37 percent to 1,290 yen and Honda advanced 2.23 percent to 4,033 yen.
THE QUOTE: “If Fed Chair Janet Yellen was ever to pull a rabbit out of the hat, now was the time to do it and she succeeded magnificently”, said Michael Ingram, market strategist at BGC Partners.
Many countries are concerned that the divergence in advanced economies’ monetary policies will lead to unordered capital flows, high level of global debts, lack of confidence in markets and turmoils in financial and commodities markets, which will greatly impact emerging countries.
Three months ago, the FOMC’s “central tendency” estimate was for rates between 1.1 percent and 2.1 percent at the end of next year; on Wednesday, the range was lowered to 0.9 percent to 1.4 percent.
US$130 billion of hot money that flooded into Hong Kong as a result of quantitative easing to revive United States economic growth would also start to flow out, reducing bank liquidity and driving up the interbank rate. “I think a lot of folks are going to say “oh the feds raised interest rates” thank heavens they feel the economy is strong enough to stand that”, said Robert Porter, Quinnipiac University.
However, Old Mutual Global Investors head of fixed income Christine Johnson said the Fed’s move towards higher rates may well be short-lived. As for the asset side, Smith said pensions were unlikely to make drastic allocation changes in the wake of the announcement, having already prepared for interest rates to go up.
Gold has tumbled 11 percent this year, largely on uncertainty around the timing of the rate rise and on fears that higher rates would hit demand for the non-interest-paying metal.
It was the first rate increase by the Fed since 2006. Given strong liquidity in the Hong Kong dollar, the commercial banks can delay passing it on and that appears to be the case, especially with mortgage loans priced according to the prime lending rate.
Speaking to reporters in Washington, Yellen explained the Fed’s decision to raise interest rates for the first time in almost a decade, and challenged the possibility that the recent expansion might not last.
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Gold slipped back on Thursday in the aftermath of the Federal Reserve’s decision to raise interest rates. Allowing them to languish at lows could spark a surge in inflation that could force the central bank to act aggressively. The Fed is still promising that its next moves will be dependent on economic data.
