Contrary to apprehensions stock markets might capitulate following an interest rate hike by the US Federal Reserve, global equity benchmarks were gainers on Thursday after the Fed raised rates by 25 basis points on Wednesday, reports fe Bureau in Mumbai.
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The move to lift rates by 0.25 percentage point to 0.25-0.5 per cent is due to signs of recovery in the United States economy. It’s going to get more expensive for anyone who wants to borrow money, a new vehicle loan, a mortgage, your credit cards, they will all cost you a little more.
Alongside the USA, the United Kingdom has been one of the best performing advanced economies in recent years, but the Bank of England probably still has a way to go before rising inflationary pressures at home persuade it to follow and up interest rates. Inflation remains well below the central bank’s 2 percent target, but that’s largely because of transitory factors such as falling oil prices.
“Base metals appear to have already acknowledged impact yet prices this morning return lower with the Fed indicating path of gradual policy tightening in surrounding monthly rate announcement comments adding potential currency headwinds through 2016”, a trader said.
The decision by the Fed’s rate-setting committee was unanimous. She answered that the central bank had weighed many risks and had made a small move.
In Europe, markets also reacted favorably, with Paris and Frankfurt both shooting up more than 2 percent, and London gaining 1.6 percent, just after opening. But the Fed’s statement suggested that rates would remain historically low well into the future, saying it expects “only gradual increases”.
The Fed’s stimulus measures have helped the S&P 500 more than triple from lows reached in March 2009 during the Great Recession. If that changes, then the Fed may feel it is behind the curve and has to accelerate its rate hikes.
ARNOLD: And Yellen stressed that so far the Fed has only moved its target rate by a quarter of 1 percent, which is a very tiny baby step.
“After being delayed in June and September, due to a combination of soft USA data and financial market turmoil, the Fed has given ample warning recently of a December hike provided there were no unanticipated shocks”, he said.
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“The real question isn’t whether the Fed should be raising interest rates or lowering interest rates; it’s whether the Fed is giving our economy sustainable interest rates”, said Rep. Jeb Hensarling (R., Texas).
