Gold down sharply after Fed rate hike

The U.S. central bank raised the range of its benchmark interest rate by a quarter of a percentage point on Wednesday.

Wall Street led global equity markets lower on Thursday a day after the U.S. Federal Reserve’s first interest rate hike in almost a decade, as continued pressure on oil weighed on energy-related stocks.

The market got what it wanted: a tiny rate hike and reassurances from the Fed that it will take a “gradual” approach to future hikes, so as not to derail the economic recovery that has grown stronger amid job market gains.

Looking ahead, however, the path for Korea is murky, with the economy saddled with flagging exports, still-weak domestic demand, high household debt and low inflation.

Our own view is for three rate hikes in 2016.

The Fed on Wednesday increased the range for its interest rate to between 0.25% and 0.5%, from 0-0.25%. USA stock index futures were up more than 0.3 percent; Nasdaq futures up about 0.45 percent, pointing further gains in United States markets today.

To ensure rates rise as high as desired, Fed policymakers aggressively expanded a so-called overnight reverse repurchase program, or ON RRP, effectively ditching a cap on the facility and saying they expect some US$2 trillion in bids during an auction to be held between 12:45 and 13:15 Eastern (1745-1815 GMT).

Then there are, of course, there are the forecasters who doubt economic data will justify another rate hike at all this economic cycle.

“When the Committee begins to normalize the stance of policy, doing so will be a testament, also, to how far our economy has come in recovering from the effects of the financial crisis and the Great Recession”, said Yellen.

“Gold is threatening to settle at its lowest level in six years, whilst crude oil is once again eyeing $35 a barrel”.

“The only reason the Fed is raising rates is to try to show that they have confidence in the economy, but the reality is they have no confidence in the economy and they’re trying to cover up those fears with this symbolic rate hike”. And though she did not define exactly what gradual rate hikes meant, she did point to the “nearly 1.5 percent” median Fed forecast for the short-term rate next year.

NARIMAN BEHRAVESH: The facetious part of me would be tempted to say big deal. Yet he doubted it would last given most other major central banks were very much in easing mode.

“With (Other OTC: WWTH – news) the confirmation of the Fed rate rise due to a strong USA economy, investors took cheer as the decision formalises opinion that the US economy is broadly expanding”, said Lorne Baring, managing director of B Capital Wealth Management. The Fed’s move will definitely further dent it and the emerging economies, in particular.