Fed finally moves

Fed finally moves

In a historic move the FOMC and Fed Chair Janet Yellen raised the base interest rate from 0.25% to 0.50%, a move which has been widely expected from investors and market commentators.

Rates in the US have been at near zero since the 2008 financial crisis and raising the rate will help boost confidence in the world’s largest economy. Janet Yellen cited that the move was unanimous between her colleagues at the FOMC however, indicated that the move should not be overblown stating, “I think it’s important not to overblow the significance of the first move. It’s only 25 basis points. If monetary policy remains accommodative, we’ve indicated that we will be watching what happens very carefully in the economy in terms of our actual, and forecasts, our projected conditions relative to our employment and inflation goals.”

Investors have now turned their gaze to 2016 and when the Fed will move again. In her statement Yellen made it clear that subsequent rate hikes would be data dependent and the current economic conditions of the time. The committee stated they were confident the economy would continue to strengthen but still has room for improvement.

Market reaction was fairly muted with GBP/USD rates moved below 1.50 briefly before pushing back over this level. However as the US markets opened it could be argued that the markets continued to react to the news as GBP/USD moved below 1.49, and reached 1.4870 as seen below.

GBP/USD Exchange rates

gbpusd

UK unemployment

Wednesday also saw the release of UK unemployment figures beat forecasts and posted a reading of 5.2% against the expected 5.3%. According to the Office for National Statistics the reading was the lowest jobless rate since January 2006. Pay increases continued its sluggish increase and only managed to grow by 2.4%, “Earnings continue to grow in real terms, although at a slower rate than we have seen in recent months,” ONS statistician David Freeman said. Wage growth has been a key barometer for Bank of England governor Mark Carney and he mentioned that he would like to see growth above 3% before considering a rate increase.

Following the Fed’s decision the rest of the month looks fairly quiet with only minor pieces of data to finish off 2015. Expect rates to stay relatively range bound for the next couple of weeks with a lack of data and Christmas holidays breaking up the weeks.

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