Investment Brief: The Fed Takes Another Step Towards Normalizing Rates
As widely expected, Fed officials voted to raise the benchmark federal funds rate a quarter point to a range between 0.75% and 1.0% yesterday. This is the second time policymakers have lifted rates in the last three months, a move spurred by steady economic growth, strong job gains, and confidence that inflation is rising towards the central bank’s target.
There were no major changes in the Fed’s forecasts. Federal Reserve officials still expect to raise interest rates two more times in 2017 and their economic projections were largely unchanged from the prior meeting. While there has been considerable talk about fiscal expansion from the new administration, policymakers have yet to incorporate any likely effects into their economic projections.
Market reaction to the Fed announcement was mixed. Stocks rallied on the news and held onto their gains into the close of the session. The yield on the 10-year Treasury note fell 10 basis points to 2.50%, erasing some of the gains made over the last few weeks. The U.S. dollar index tumbled to its lowest level in nearly a month as currency traders were disappointed the Fed did not signal a more aggressive policy stance.
The central bank’s gradual move to normalizing rates should be seen as a welcome development for savers and retirees. The low and negative interest rate environment from the last few years has been extremely painful for those nearing retirement, and has rewarded risk takers. So far, the Fed has balanced the normalization process perfectly – risk assets are still doing well and rates are gradually moving higher. This is good news for everyone right now.
Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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