World stocks rally on U.S. rate hike

The Federal Reserve raised its key interest rate on Wednesday from a range of 0% to 0.25% to a range of 0.25% to 0.5%.

“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.

British stocks followed those in Asia and Wall Street into positive territory after the US Federal Reserve’s decision to raise interest rates for the first time in nearly a decade.

More than that, Fed chair Janet Yellen and her band of economic governors signalled that they will continue to move cautiously over future rate hikes.

To the surprise of very few observers of the Federal Reserve, the central bank raised the target for its federal funds rate a quarter of one percent on Wednesday, in line with what it had been telegraphing.

Under the 1960s’ Martin Fed, for example, the financial systems was still heavily regulated, the economy was in the early stages of a shift from manufacturing to services, and globalization of the credit markets had not yet complicated the USA central banks job of managing the domestic supply of money and cost of credit.

While employment and inflation – the Fed’s two main concerns – have continued to rise in recent months, there are some headwinds. The U.S. interest rate hike may complicate efforts to halt that slowdown.

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

China, the world’s second-largest economy behind the USA, responded cautiously to the Fed’s decision.

The Fed’s projections, released with its statement, show it still anticipates a federal funds rate of 1.4 percent by the end of 2016, which implies four interest rate increases in 2016, or one per quarter. Rates on mortgages and auto loans aren’t expected to rise right away, but financial advisor Greg Petrie says this could actually spur the economy even more since it gives banks more incentive to lend.

The Dow Jones industrial average, which was up about 75 points just before the Fed announcement, ended the trading day with a gain of 224 points, at 17,749.

Still, the Fed’s forecasts for the United States economy and interest rates have proven too optimistic for most of the recovery from the Great Recession.

But the economy is now a lot healthier with unemployment at 5 percent, half of the 10 percent rate it hit in 2009 during the worst of the jobs crisis.