Fed follows through on rate hike, still plans three more next year
Amid low inflation, limited room for action a good sign for risk markets
The US Federal Reserve increased the overnight rate by 0.25% as expected, and indicated that it still expects three more such rate increases during the course of 2018. The outlook for US monetary policy is basically unchanged from November’s meeting of the Federal Open Market Committee, Bond yields and the US dollar’s exchange rate against major currencies were virtually unchanged in the minutes after the announcement.
The Fed’s hand is restrained by low inflation, which flummoxes the Fed’s models, and several members of the Federal Open Market Committee as well as heads of regional Fed banks not presently serving on the FOMC have warned against aggressive tightening in the face of low inflation. The Fed’s limited scope for action provides a positive backdrop for risk markets.