Fed hike yesterday’s news, now for tomorrow

The US Federal Reserve has raised interest rates as expected but all eyes are on the future as a slightly disappointed market reflects on what happens next.

The FOMC has hiked for the second time in three months, lifting its target overnight interest rate by 25 basis points to a range between 0.75 per cent and 1 per cent.

"[The market was] looking for something a little bit more aggressive."
Tom Kenny, Senior international economist, ANZ

The move had been well telegraphed and the market was keener to see the Fed’s thoughts on future policy. The central bank reiterated its stance three further hikes were likely this year and next.

I think the market was a little bit disappointed. They were looking for something a little bit more aggressive – potentially up to four hikes this year and next.

Fed hike yesterday’s news, now for tomorrow

There was also disappointment over lack of further comment on the Fed unwinding its $US4.6 trillion balance sheet.

ANZ is expecting three hikes in 2017 and three hikes in 2018 but we do see the potential for the Fed to go a little bit more quickly.

Firstly, we see fiscal policy under a US President Donald Trump administration could be expansionary. Secondly, the Fed is already pretty much close to its dual mandate of full employment and price stability.

Watch the video above to find out more.

Tom Kenny is ANZ senior international economist

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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