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US Fed raises interest rates, signals more hikes ahead

21 December, 2018, 19:18 | Author: Kristi Dunn
  • A screen displays the headlines that the US Federal Reserve raised interest rates as a trader works at a post on the floor of the New York Stock Exchange

"Today, we see growth moderating ahead".

The Fed raised key overnight lending rate rates by 0.25 percent point as expected to a range of 2.25 percent to 2.50 percent. Wednesday's rate hike marked the fourth increase of 2018, and the ninth such move since Q4 2015, when the central bank started to unwind the easy-money policy known as quantitative easing, which effectively brought rates to near zero and kept them low during the recovery from the 2008 recession.

After steady gains through the spring and summer, stocks have fallen sharply in the fall as investors worry that global economic growth is cooling off and that the USA could be headed for a recession in the next few years. "The market needs, for the Fed's statement to prove correct, an unequivocally strong parade of strong economic data for that forecast to hold". Powell thus doesn't seem to be fazed by the prospect of moving beyond what some consider is the neutral rate, which means markets may now underprice the commitment of the Fed to two rate hikes during 2019.

In particular, the FOMC chose to reduce the number of rate hikes to two in 2019 (as we suggested in this post yesterday), down from three in the previous communication.

Fed officials are grappling with conflicting forces.

The Federal Open Markets Committee had already ordered three previous rate hikes this year, despite escalating pressure from the president.

At the same time, federal tax cuts and spending increases that juiced economic growth this year are set to begin fading in 2019. Traders are fleeing to safety, according to reports, but with the looming crisis in Britain, the trade war between the United States and China and other problems in the Eurozone, there might not be anywhere to hide.

Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding bullion. After adding in an additional thousand points from the highs achieved in October and dividing that number into the 20,000-point gain, which is the result of the massive 10-year rally from 2009 to present day, traders could experience the most significant decline in history.

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This slowdown will more than likely deter the USA dollar from making more gains and allow silver to make up for some of the losses it experienced throughout the year.

President Donald Trump sent a tweet Tuesday morning, hoping the Fed would go by feel of the market and "don't just go by meaningless numbers".

The Fed, meanwhile, projected there will be two rate hikes next year, . a reduction from what it forecast in September. "But I would say if you look at the specifics you can't just look at the headline which was two more rate hikes you have to actually look at the seventeen dots on the dot plot". Indicators of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.

Yesterday, the Fed announced the expected 25 basis points rate hike of the night after a reaction which has thus far resulted in a 109-Pip decline.

In its statement, the Fed said risks to the economy were "roughly balanced" but that it would "continue to monitor global economic and financial developments and assess their implications for the economic outlook".

The US central bank raised the target range for its benchmark funds rate from 2.25 to 2.5 percent. Analysts regard the 200-day moving average as a critical component to determine when a market is now in a long-term bullish trend.


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