Finally, the Fed Raises Its Rate — FINANCIAL REPORT

As expected, the Federal Open Markets Committee decided last week to raise its benchmark interest rate. Removing the two extremes of rate hike expectations, it is safe to assume that all things being the same, at least two rate hikes will be effected in 2017.

Fed officials expect three rate increases next year. This policy means that it would be maintaining monetary accommodation and has no plans to shrink its balance sheet by selling any of the over $4.5 trillion in securities it holds.

A speech by Fed’s Yellen, scheduled for 1:30 p.m.

The Federal Reserve has a dual mandate of creating an economic environment of price stability and full employment. While overall unemployment in the U.S.is twice that, at 4.6 percent, it’s at its lowest in more than nine years.

Headline inflation stands at 1.4 percent, well below the Fed’s 2 percent goal. Higher rates in the United States would also exert upward pressure on the local rates, especially since portfolio inflows through the debt route have been significant since 2015 and considering the debt capital outflows seen this year. Gold and silver fell sharply.

But Schiff doesn’t think these additional rate hikes are likely to happen. Most borrowers have looked at that gap for some time and decided that they weren’t getting paid enough of a discount to take on variable-rate risk, and rightly so, but circumstances have evolved to the point where this thinking should now be reconsidered. First, the economic data: the Fed reiterates it is data dependent and this is true. Indeed, Ms. Yellen referred to the US economy as “remarkably resilient”.

“There’s the potential for rates to be rising certainly faster than they are with the current Fed“, Gattuso, a financial planner at Courier Capital, says. This contributed to the index to end the week the week 1209 points lower or 2.4 percent. “But as we approach the current peak, slightly higher interest rates may effectively discourage the creation of the asset bubbles and bad investments that could lead to the next recession”. “I’m a strong believer in the independence of the Fed“. Yellen mentioned the dollar in an answer to a question during the press conference. The magnitude of easing over calendar 2017 however, would depend upon the trajectory of core CPI inflation, progress of monsoons, crude oil price movements, the pace of recovery of the economy from the demonetisation shock and successful implementation of the GST regime.

Ms. Yellen and her predecessor Ben Bernanke have been proponents of fiscal stimulus to boost the economy.

She may well have been talking about the Fed’s own future under President Donald Trump. In Chair Yellen’s press conference following the announcement on Wednesday, she was even more noncommittal than normal to almost all of the questions, taking the wait-and-see approach to the incoming administration, but acknowledging that there is “considerable uncertainty” with regard to policy changes that may occur. “The job prospects and career opportunities for new graduates at this time are very good”. In making the announcement, the Fed projected that it would move rates up another three times in 2017. Chair Janet Yellen described Fed’s decision as a “vote of confidence” in the economy, meaning that the rate hikes were based on strong positive macroeconomic indicators.

Last week’s FOMC meeting was undoubtedly bullish for the US Dollar.