Fed rate hike Fed cushioned impact of tightening, says market economist

He also said that the RBI is ready to face up to volatility as panic withdrawals by overseas investors raise the prospect of dollars getting sucked out of the market rapidly and in large quantities. Economic growth is expected to continue in the U.S. Another reason to increase interest rates, Yellen noted, was the low official rate of inflation.

The dollar drew demand after the Fed’s rate increase drove US stock prices and long-term interest rates higher.

He said that the rise in the U.S. base interest rate will not spare advanced economies, either.

Among mid-caps, Elementis fell more than 6 percent after the specialty chemicals maker said markets had remained challenging and its earnings per shares (EPS) for the current year was now projected to be at the lower end of market expectations. USA stocks were also poised for a solid open after advancing in the wake of the Fed’s decision Wednesday – Dow futures and the broader S&P 500 futures were up 0.2 percent.

The next big decision for the Fed, likely after a few more rate increases, will be when and how far to go in shrinking its portfolio of Treasury and mortgage assets, either by allowing them to run off naturally or by selling outright, a less likely option.

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.

Interest rates already going up, just a day after a hike by the Federal Reserve.

Meanwhile, the Finance Ministry said that India is well prepared to deal with the impact of the USA interest rate hike. “The Fed did what it had promised, and so markets were not shocked by the move”, explained Christopher Dembik, an economist with Saxo Banque in Paris.

A hike would also see USA and European monetary policy move in opposite directions. The rate hike was a long-expected vote of confidence in the USA economy. The fed expects its federal funds rate to reach between 2 percent and 4 percent by 2018.

But if the Fed becomes aggressive with its rate rises the Aussie could fall to around 60 United States cents next year, making an RBA rate cut less likely.

Steady gains in the labor market have taken the U.S. unemployment rate down to 5 percent.