Investors warm to the Fed’s rate move and weigh Trump’s ‘skinny’ budget

The Fed’s rate hikes won’t necessarily raise auto loan rates. It had plunged 0.11 percentage points the prior day, after the Fed threw cold water on speculation that it may get more aggressive in raising rates.

“The bar was high for the FOMC (Federal Open Market Committee) to deliver a hawkish surprise, and one could argue that asset prices, in particular bond yields and the dollar, had been reflecting overshot tightening expectations going into this meeting”, said ING currency strategist Viraj Patel, in London. The Fed chair is likely to stress numerous points she has made in recent speeches: That while the Fed is raising rates, the pace of the increases will likely remain gradual and that rates will still be at historically low levels.

“Some home buyers will need to make adjustments in the near term on home price when rates do rise, but in general, consumer sentiment signals that people feel their situation is better today than it was a year ago”, Fisher says. During the press conference she confirmed that in the long-run the FOMC expected this rate to be 1%, consistent with its current expectations for 3% interest rates at the end of 2019 and 2% inflation. Markets are also betting on a potential economic boost from President Donald Trump’s proposed fiscal policies. The central bank doesn’t directly affect those rates, at least not in the short run.

Consumers carrying large balances on credit cards are likely to feel it the most. The prime rate is not set by the Fed, but it is largely determined by the rate the Fed does set, which is the Federal Funds Rate.

New economic projections released by the Fed were essentially the same as the last estimates in December.

In Europe share prices dipped with investors in wait-and-see mode and not wanting to take any risks ahead of the Fed’s decision. Possibilities of a rate hike was hovering at around 93%, according to CME futures trading. “I think they’re confident, but it’s hard not to be cautious after we’ve had so many shocks over the years”. The Dow Jones industrial average fell 15.55 points, or 0.1 per cent, to 20,934.55. But it did note that inflation, after lagging at worrisomely low levels for years, has picked up and was moving near the Fed’s 2 per cent target.

Such a move could put them at odds with Trump administration officials who are pushing tax cuts, regulatory reductions and increased infrastructure spending in an attempt to accelerate economic growth.

Half the respondents see that happening by the end of 2017, and the other half expect the Fed to wait until 2018 or later to detail its balance sheet resolution plan.

Now the pace of interest rate increases look to be finally speeding up, backed – as the Fed statement on Wednesday said – by rising employment and increasing inflation. But some economists are wondering whether the new chart may estimate a higher number of rate increases, reflecting a brighter outlook for the economy. But even if the Fed hikes three times this year, rates would still be low by historical standards.