You are here: News > Industry News > Copper > The Fed Speaks and Raises Short-Term Interest Rates by 25 Basis Points

The Fed Speaks and Raises Short-Term Interest Rates by 25 Basis Points

Industry News 11:47AM Mar 16, 2017 Source:Kitco

Gary Wagner

Wednesday March 15, 2017 17:50

As anticipated, today the Federal Reserve announced an interest rate hike at the conclusion of this month’s FOMC meeting. This wil raise the benchmark rate for Fed funds from .75 % to 1 %. This is the first interest rate hike in 2017 and the second rate hike in four months. However, when you look at the big picture, this is only the third interest rate hike since the beginning of the 2008 economic meltdown and the initiation of the quantitative easing program by the Federal Reserve.

1 Down 2 To Go

Although Janet Yellen in her commentary immediately following the conclusion of today’s FOMC meeting said that, “monetary policy remains accommodative,” she also added that they are still on target for a another two rate hikes this year. This would take the central bank’s forecast for rates to about 1.4% by year-end. Of course, any and all future moves would be data dependent and based upon the Fed’s core objectives of full employment and a 2% inflation rate.

The Power of a Word

As many analysts have pointed out, market participants analyze each and every word uttered by members of the Federal Reserve. We saw the power of a single word represented during the question and answer session immediately following Janet Yellen’s statements. When one reporter inquired as to the word “symmetric” being added to the prepared statement, Janet Yellen replied, ”It is an appropriate time to add that word in our statement.” Chairwoman Yellen added that the additional word reflected the Fed’s belief that the inflation rate of 2% could, at any given point, move above or below the 2% target, and as such, they would have a symmetric move to realign the inflation rate to 2%.

Gold and US Equities Rally as the US Dollar Falls

The net result of today’s announcement by the Federal Reserve was a relief rally in both gold and US equities. Once again they are running in tandem, with both moving to higher pricing. The Dow Jones Industrial Average gained 112 points to close at 20,950 with an increased value of over half a percent. Based upon percentages, the rally in gold was much more significant, trading up over a percent and a half with April Comex futures closing at $1220.90.

Although today’s move to raise interest rates was widely expected, the overall atmosphere of optimism continued to prevail in US equities markets. The tone and timbre of statements made by Janet Yellen, in which she underlined the fact that the monetary policy remains accommodative, was enough to put severe pressure on the US dollar and initiate a major rally in the precious metals markets.