Well, the Fed went ahead and did it. For the first time this year, the nation’s central bank hiked up key interest rates. Investors largely expected the move, because by raising rates the Fed is acknowledging that the economy is improving further.
As a result, it was a minor hike; the Fed raised the benchmark interest rate by 25 basis points to a range of 0.50% to 0.75%. If you remember back to my predictions last week, my prediction was that the Fed would do just that.
This was widely anticipated, and it’s really not that big of a deal. The Fed likes to raise interest rates during the holiday season when they think we won’t notice.
Of course, the Fed also provided guidance for the New Year.
Per the norm, the Fed promised to raise key interest rates. Specifically, the Fed is forecasting three 0.25% raises in 2017, as well as in 2018 and 2019. Then again, the Fed doesn’t have the best track record in following through with its predictions, so we’ll have to wait and see.
As for me, I’m keeping a close eye on the bond market. Treasury rates are already on the rise, climbing higher following the Presidential election on anticipation of infrastructure spending. And if market rates continue to rise, shorter-term rates will also move higher and the Fed may be forced to follow.
The key takeaway today is that the Fed isn’t actually driving interest rates, market rates are. So I wouldn’t worry too much the Fed right now. In either event, in this rising rate environment, I’ll keep you updated on the latest stock market and economic news through this daily blog.