Gold falls on Fed rate hike

The widely expected rate hike, though small, is seen as a sign of how much the United States economy has healed since the 2007-08 financial crisis.

The hike will heighten speculation about the timing of a rate rise in the United Kingdom, where interest rates have been held at the historic low of 0.5% since 2009. That is in line with the consensus view of economists that the Fed’s target for the federal funds rate – the that banks charge on overnight loans – will end next year around 1 percent.

“The fact that the Fed finally embarked on tightening policy, no matter how gradual it may be, distinguishes it from other central banks around the world”, said Sireen Harajli, a foreign exchange strategist at Mizuho Corporate Bank in NY. In its most recent projections, the Fed lowered its expectation for 2016 core inflation growth to 1.6%, down from its previous 1.7% expectation.

The Fed’s projections, released with its statement, show it still anticipates a federal funds rate of 1.4% by the end of 2016, which implies four interest rate increases in 2016, or one per quarter.

“With the confirmation of the Fed rate rise due to a strong USA economy, investors took cheer as the decision formalises opinion that the USA economy is broadly expanding”, said Lorne Baring, managing director of B Capital Wealth Management.

“The process of normalizing interest rates is likely to proceed gradually, although future policy actions will obviously depend on how the economy evolves relative to our objectives of maximum employment and 2 percent inflation”, Yellen said in a press conference Wednesday.

But Janet Yellen, who chairs the Board of Governors of the Federal Reserve System, said that the us economy is performing well and that the central bank is in no hurry to raise interest rates again.

The Fed made it clear that the quarter-of-one-percent hike was the beginning of a gradual tightening cycle. If that changes, then the Fed may feel it is behind the curve and has to accelerate its rate hikes. 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.

Mr Carney stressed that a rise in U.S. rates will not mean higher United Kingdom borrowing rates, describing an ongoing “low for long” situation where economic conditions for a United Kingdom rise has not occurred.