Broker Check

The Federal Reserve Raises Rates

| December 15, 2016
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                    The Federal Reserve raised the federal-funds rate target by 0.25% yesterday. The interest rate target is now between 0.50% and 0.75%. This was completely anticipated by the market. The markets were caught off guard by the forecast for three rate increases next year. The consensus ahead of the meeting was for two hikes in 2017. If three increases occur, the fed funds rate would end 2017 between 1.25% and 1.50%. Treasury yields rose with the increase concentrated on bonds maturing in two to ten years. Inflation is now close to the Federal Reserve’s two percent target and is likely to exceed two percent in 2017. The unemployment rate is now at 4.6%, while the U-6 unemployment rate which measures unemployed and under-employed workers has declined to 9.3%. The Federal Reserve’s dual mandate of strong employment and stable inflation has been met. Given this data, we believe, three rate increases are likely next year. If animal spirits return and the economy accelerates, then more than three rate hikes is a possibility. Whatever the outcome, the days of zero interest rates are hopefully behind us.

 

*The information presented in this newsletter is for educational purposes only. It is not intended to be considered investment advice, as there is no substitute for professional advice from a qualified adviser with knowledge of a given client's investment objectives and other circumstances. Past performance may not necessarily be indicative of future results.
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