The US economy’s “continued progress” towards stability has underpinned the US Federal Reserve’s decision to increase the federal funds rate to 0.75–1.00 per cent.
Federal Reserve chair Janet Yellen said the economy was expanding “at a moderate pace” and household spending growth had been supported by “solid income gains and relatively high levels of consumer sentiment”.
“Our decision to make another gradual reduction in the amount of policy accommodation reflects the economy’s continued progress toward the employment and price stability objectives assigned to us by law,” she said.
The decision to hike was very much in line with market expectations, with Standish Mellon Asset Management chief economist Vincent Reinhart noting this was an opportunity for the Federal Reserve “to make a little further progress in renormalising policy”.
Mr Reinhart said that while the decision was not an unexpected one, investors should still look at the commentary from the Federal Reserve around the decision, cautioning that “the interesting question is whether Ms Yellen wanted to take this opportunity or if she was pulled along by her colleagues”.
“Ms Yellen leads from behind, talking a good game, delaying whenever possible and acquiescing to action when the internal momentum is overwhelming,” he said.
“It will be interesting to see how well Ms Yellen explains this action at the press conference and how consistent the moveable parts of the Summary of Economic Projections are with action at this meeting.
"If she is an enthusiastic warrior, then a tightening in March makes three more possible in 2017, if she seems reluctant, then her committee will have to drag her along, slowing up in the process."
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