FED: no movement on rates, U.S. economy strengthening
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FED: no movement on rates, U.S. economy strengthening

Markets didn’t bat an eyelid last night as the Federal Reserve (FED) did what was expected of it, and kept interest rates unchanged. Wednesday saw the end of the central bank’s first two-day meeting since President Trump’s inauguration, and analysts viewed the outcome as a foregone conclusion. Benchmark interest rates remain in the range of 0.5% to 0.75%.

The last rates hike was in December – only the second in a decade – but the FED expects two further rates hikes this year, justified by an improving economy. Citing the latter, the FED issued a statement saying that: “measures of consumer and business sentiment have improved of late.”

The bank also foresaw that this would see inflation “rise to 2% over the medium term,” – a long sought after, but evidently elusive, goal thus far. However, the bank maintains an incrementalist stance – just because things look better, doesn’t mean it’s putting its foot on the accelerator.

Still, they do look better. And President Trump has vowed to nurture the economy with tax cuts, spending, and deregulation, which are all conducive to higher inflation in the near term.

Kully Samra, MD of Charles Schwab, told the BBC:

“This is only the first FOMC meeting of eight in 2017 so there are still plenty of opportunities for the FED to raise rates throughout the year and it is likely that we will see a rate rise in March or June. In our view, two rate hikes this year would be sufficient to stave off inflation concerns and would not negatively impact economic growth.”

The opinions in this article do not reflect those of Dominion Fund Management Limited, and in the instance of any forward-looking statements, these should not be construed as advice.

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