More reserve from the Fed
Yesterday, US central bank chairman Jerome Powell told rates to take a hike. While the move was widely expected, are there longer-term ramifications?
Markets gave a dull cheer this morning as the US Federal Reserve kept its promise to raise interest rates during its meeting last night. The central bank has taken the next step along the path to monetary policy normalisation, cranking interest rates up by 0.25%. The hike, which brings interest rates to 2.25%, was in line with the Fed’s forward guidance. The move higher was largely already priced in, and the reaction across equity and fixed income markets was muted. The Fed also confirmed that another hike is likely at the December meeting.
The statement language represented the continuation of an approach taken by the Fed for several years, although Powell de-emphasised the “accommodative” monetary policy stance in the face of sustained economic expansion and a strong labour market. While Powell mentioned trade wars and emerging markets in the press conference, there was little hint that these events were about to deflect the Fed from its approach to gradually normalise interest rates.
Views from our experts:
Tim Drayson, Head of Economics
Ben Bennett, Head of Investment Strategy and Research