As expected, the Federal Reserve announced today that it would raise its benchmark interest rate by a quarter of a percentage point.
“In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1/2 to 3/4 percent,” the Fed’s policy-making committee said in a statement. “The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation.”
The move marks the first interest rate hike this year; the Fed last hiked rates in December of 2015. The Fed had tentatively planned on three incremental rate hikes throughout 2016, but planned hikes this year were continually stalled by less-than-stellar economic news.
So what does that mean for the market? Ultimately, it might not mean as much as a rate hike in ordinary times, according to bond expert Bryan McNee, president of McNeeSolutions.com. Because traders are acting in anticipation of President-elect Donald Trump’s economic policies, they’ve already been moving investments from bonds to stocks – basically, exactly what they’d do in the event of a rate hike.
“Bond traders have spoken. They’ve been selling off – not because of a perceived rate hike, but because they don’t think they’ll be able to get out at these prices next quarter,” he said. “They expect tax cuts. They expect financial regulatory reform. They expect pro-growth policies. And growth in the economy always equals inflation, and bonds don’t like inflation.”
