UNITED STATES — The U.S. Federal Reserve delivered another interest-rate hike at its December monetary policy meeting, marking the fifth such move in its tightening series starting in December 2015. The Federal Reserve (Fed) raised its benchmark interest rate, the fed funds rate, by 25 basis points to a range of 1.25 percent to 1.5 percent.
Chris Molumphy, Franklin Templeton Fixed Income Group CIO, offers his take on the market implications, in a Yahoo financial report by Tom Reese. He says that while rising rates may give some investors pause, in the grand scheme of things, U.S. interest rates still remain quite low, and are only just returning to more “normalized” levels.
RBC Economist Josh Nye reported, “Today’s rate hike was fully expected so it was the outlook for monetary policy next year that drew our attention. In that respect the Fed gave us something to talk about, boosting their 2018 growth forecast quite substantially and predicting sub-4 percent unemployment over the next two years.”
He added that Chair Yellen confirmed that expected changes in tax policy were responsible for some of the upward revision to growth forecasts.
“But even with stronger activity likely pushing the economy beyond its longer run capacity limits, the median forecast for three rate hikes next year was unchanged and a handful of committee members think even less tightening will be appropriate,” Nye said. “Lack of inflationary pressure, seen again in this morning’s CPI report, is keeping policymakers somewhat cautious. It is telling that most don’t expect inflation will rise much above 2 percent in the coming years, even with economic conditions expected to be very tight.”
He added, “We are slightly above the ‘dot plot’ median in calling for four rate increases next year. For the Fed to move at that pace, we’ll need to see wages and inflation responding more to tight economic conditions than was evident this year.”
For more economic research, visit RBC at http://www.rbc.com/economics.
SOURCE: RBC press release and Yahoo! report