In line with expectations, the Federal Reserve raised its benchmark interest rate by 25 basis-points to the range of 0.75 - 1.00 percent on Wednesday (15/03). It was the Fed's third rate hike in the past 15 months. As this hike had already been expected by basically all market participants it was more important to learn the Fed's stance on the pace and number of further rate hikes in 2017. On this matter Fed Chief Janet Yellen remained rather dovish, saying any further hikes in 2017 would be gradual. Wall Street now expects to see two more hikes in 2017.
The Federal Reserve's decision to raise its interest rate environment at the March 2017 policy meeting was allowed by a strengthening US job market and accelerating US inflation. The US economic recovery has persisted and therefore it should be strong enough to deal with steadily rising rates. A higher Fed Funds Rate has a direct impact on credit card loans, home equity loans and adjustable-rate mortgages.
Meanwhile, the Fed's outlook for the US economy did not alter much compared to earlier statements. It sees US economic growth at 2.1 percent year-on-year (y/y) in both 2017 and 2018 (and easing to 1.9 percent y/y in the following year).
However, the Fed provided little information about the timing of any future interest rate hikes. Many analysts point at June 2017 as the next possible Fed Funds Rate hike because it is likely the Fed wants to see first whether Trump's ambitious tax cuts, deregulation and infrastructure spending programs will take off.
US stocks rose after the Fed's decision was announced publicly. On Wednesday (15/03) the Dow Jones Industrial Average rose 0.5 percent, the S&P 500 Index advanced 0.8 percent, while the Nasdaq grew 0.7 percent. Meanwhile, the US dollar weakened considerably because the Fed seems not as "hawkish" as most market participants had anticipated. In early Asian trade on Thursday the US dollar is weakening heavily against Asian currencies.
Asian stocks are set to follow Wall Street higher on Thursday (16/03) with the exception of Japan's Nikkei (due to the appreciating yen versus the US dollar). Besides the dovish stance of the Federal Reserve, Asian stocks will also be supported by the quick count results of the Dutch elections. Geert Wilders' anti-Euro party won less seats than expected and therefore there is less concern about the stability of the European Union. Moreover, crude oil prices rose about two percent on the back of the weaker US dollar and a surprise drawdown in U.S. crude inventories.