Fed Raises Key Interest Rate For The Fourth Time Since 2015

The yield on the 10-year Treasury ticked higher following the announcement, rising to 2.133% from 2.10% earlier today data showed a negative turn for consumer price inflation and retails sales. The news flow out of Washington, D.C., is dominated by the shooting of Republican Representative Steve Scalise and several other people, but the Fed's rate hike decision remains on the docket this Wednesday.

The Standard & Poor's 500 index, the benchmark that professional investors follow, likewise wasn't changed much either.

About 15 minutes into trading, the Dow Jones Industrial Average stood at 21,334.67, up slightly from yesterday's record close.

"But what is more anticipated are the accompanying materials, like the Fed's latest forecasts on inflation, employment and the "dot plot" forecasts of where the Fed sees policy rates from here", he said.

What's really going on is the Fed is getting "less loose", not "tight" and there's ample room for the Fed to stay along this path without risking a recession or a bear market. Unemployment has already reached a 16-year low of 4.3 percent. However, the latest reading placed inflation at a more modest +1.7%. This marks the third increase this fiscal year, with previous hikes in December 2016 and again in March of this year.

However, some observers pointed out how five new rate-setters were set to join the central bank next year, rendering the projections for next year less than reliable. The policymakers signaled that they still expect to raise rates once more in 2017. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

The Fed's estimates for the unemployment rate by the end of this year moved down to 4.3 percent, the current level, and to 4.2 percent in 2018, indicating the Fed believes the labor market will continue to tighten. The rate sets what banks can charge each other for overnight loans and influences the availability and flow of money in the US economy.

Wednesday's decision was made with an 8-1 vote, with Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, dissenting.

The statement said: "The committee now expects to begin implementing a balance sheet normalisation programme this year, provided that the economy evolves broadly as anticipated". The central bank had pushed rates to near zero in response to the financial crisis. Fed officials project growth of roughly 2 percent in 2017.

Wall Street investors shouldn't be surprised by the rate hike: They estimated there was a 96% chance that the Fed would raise rates after its two-day meeting.

Exactly when the next rate increase will be is a matter of conjecture.

Financial markets have been anticipating the increase. Those forecasts are far below the 3 percent annual growth the Trump administration has said it can achieve through tax cuts, deregulation and tougher enforcement of trade rules to protect American jobs.

The U.S. bank expects the dollar to gain 2 per cent against major currencies over the next few weeks.