The US Federal Reserve has hiked interest rates from 1.5% to 1.75%

Jacob Deppe, Head of Trading at online trading platform Infinox, comments: “A rate rise by the US Federal Reserve today was widely expected, priced in by markets and came as little surprise. 

“So sure were markets that a rate rise would occur today they gave it a near 95% probability. 

“What markets will have been looking for was any indication the Fed planned to tighten monetary policy at a faster rate than expected during the rest of 2018.

“We haven’t seen a great deal of evidence to suggest the Fed is about to radically steer away from its previously stated policy of three interest rate rises this year. 

“So far new US Fed Chairman Jerome Powell has walked a fine line between suggesting a willingness to raise interest rates four times, if he deems it necessary, and sticking with the policy of his predecessor.

“That still remains the case. A fourth rise, while still possible, remains unlikely at the moment.

Nancy Curtin, chief investment officer at Close Brothers Asset Management, said: “It was a fairly straightforward decision for Powell to take action and raise interest rates.

“The US economy seems to be in somewhat of a sweet spot, with a synchronised global economy, a weaker dollar, fiscal expansion and the prospect of increased business investment all supportive of growth.”

Kully Samra, UK managing director of Charles Schwab, said: “The Fed seems confident in its belief that increased economic expansion, a robust pace of job growth and even a slight uptick in inflation justifies the first rate rise of the year.

“However, the impact of increased fiscal stimulus in the form of tax cuts and additional government spending is not yet known and may make it harder for Jerome Powell and his colleagues to continue along the path of slow but steady rate rises as set by his predecessor. 

“Inflation pressures are slowly building, but enough deflationary forces remain – mainly from intense competition which is driving down costs – that the threat of runaway inflation remains low.

“Powell is keen to continue the gradual path of rate normalisation and this latest hike suggests he is not overly concerned with the recent stock volatility, despite the fact that markets remain skittish about a possible trade war.

“While rate hikes pose a risk to growth, as long as overall financial conditions continue to remain favourable, stocks may advance.”

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