The hawkish US Federal Reserve just did an interest rate hike, again. It’s the 4th and final rate hike of year 2018.
The Central Bank’s benchmark interest rate was raised 25 basis points from 2.25 to 2.5 percent. It’s also the ninth increase since the Federal Reserve (Fed) began raising rates from near-zero back in 2015.
Key highlights from yesterday’s FOMC meeting:
- The Federal Reserve (Fed) take the target range for its benchmark funds rate to 2.25 percent to 2.5 percent.
- Central bank officials now forecast two hikes next year, down from three rate raises previously projected.
- However, the Federal Reserve (Fed) continues to include in its statement that further “gradual” rate hikes would be appropriate.
- GDP is now seen as rising 3 percent for the full year of 2018, down one-tenth of a percentage point from September, and 2.3 percent for 2019, a 0.2 percent point reduction.
- FOMC pointed out to three more moves in 2019 and possibly another one in 2020.
Also, the Dow Jones Industrial Index (^DJI), S&P 500 Index have erased the gains for the year.
What a Rate Hike means for investors:
- Companies which have high gearing or highly debt-leverage such as REITs would be affected as their cost of borrowing goes up
- Banks will tend to do well in high interest rate environment
- The USD will rise. It will affect companies that do a significant amount of business on the international markets negatively, while it is typically good for companies that have most of their business within the United States.
Also, the current Federal Reserve (Fed) chair is Jerome Powell, who replaced Janet Yellen back in February 2018.
See how the Singapore Stock Market is reacting today and what other investors are saying (click on the view now button).
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