Liftoff! Global markets rise after historic Fed decision

“The Fed’s decision to raise the USA interest rate by 0.25 points is as anticipated”.

The US Federal Reserve’s decision to raise its benchmark funds rate to 0.25-0.50 percent also marks the first hike since 2006.

“Most people have been reducing their exposure to gold in their portfolios and I can’t see any reason why in a low to no-inflation environment and higher interest rate environment you would choose to significantly add to your gold holdings”, Citi’s Wilson said.

It made it clear that the rate hike was a tentative beginning to a “gradual” tightening cycle, and that in deciding its next move it would put a premium on monitoring inflation, which remains mired below target.

The announcement came at the conclusion of the crucial two-day meeting of the policy making federal open market committee’s (FOMC).

All major Asian stock markets were higher as the Fed said the USA economy was “performing well”.

“By and large the Fed has delivered on market expectations, hence a fairly muted reaction”, Ray Attrill, National Australia Bank’s global co-head of FX strategy, said.

The Fed is expected to maintain the fed funds rate through a number of tools, most importantly the interest rate on excess reserves, or IOER, the payment to banks for the United States dollars 2.5 trillion or so reserves they now hold at the Fed. The rate hike was a long-expected vote of confidence in the USA economy, which is the world’s biggest and a crucial market for exporters in trade-reliant Asia.

“But as the Fed undertakes more albeit gradual rate hikes next year, the RBA retains an easing bias and commodity prices remain weak the trend in the $A is likely to remain down with it heading to around $US0.60 sometime in the next 12 months”. The euro slipped 0.3 percent to $1.0875. At the time, Fed officials led by Ben Bernanke were struggling to contain a devastating financial crisis that triggered the worst recession since the Great Depression.

The high exchange value of the dollar has also kept inflation low, Yellen said.

Yellen was asked if the Fed may have moved too soon in increasing interest rates.

The committee noted considerable improvement in labor market conditions this year, and said it was reasonably confident that inflation will rise, over the medium term, to its 2 per cent objective.

“The price of credit is going to go up, so you’re going to end up paying more for all of the products where you are now borrowing money”.