US Fed finally raises rates

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The US Federal Open Market Committee today raised rates for the first time in almost 10 years, bringing an end to the “will they?” “won’t they?” cycle on the interest rate front. The last time the rates were raised was June 29, 2006 when rates moved from 5.0 to 5.25%. How the world has changed since then. Today we have moved from 0 to 0.25%.

All ears hinged on every word that was spoken by Janet Yellen, Chair of the Board of Governors of the Federal Reserve System, in making the announcement. The market was somewhat reassured by the use of the language and in particular the notion of GRADUAL pace for future increases. I recently met with a senior portfolio manager of a global investment firm that manages over a trillion dollars in assets and put forward the hypothetical of if you were a speech writer for Yellen what do you want to hear post this pending announcement. I think he would be pleased with the way this has been presented today.

It was received well be by the markets as an immediate reaction to the announcement as it indicated signs of a belief in the strength of the US economy. The US market was up over 1% immediately following the announcement. We expect a similar reaction here in Australia today. The reality is that the market has certainly factored in not just this rate rise but potential future rate rises so I believe today somewhat of an “It’s about time!” moment.

We will no doubt now turn our attention to when will be the next rate increase. In the meantime it is nice to have this increase out of the way and to remove the speculation that this market has been a victim of for quite some time now.