15 December 2016
Washington DC
Reporter: Drew Nicol

US Federal Reserve commits to rate hike


The US Federal Reserve has raised the target range of the federal funds rate and hinted that further rate hikes may also be on the horizon.

It rose from 0.25 to 0.5 percent to a range of 0.5 to 0.75 percent.

The federal open market committee said yesterday (14 December) that its monetary policy remains “accommodative, thereby supporting some further strengthening in labour market conditions and a return to 2 percent inflation”.

This could imply that the Fed will deliver more than the two further hikes that are widely expected in the coming year.

The committee, which is chaired by Janet Yellen, added: “In determining the timing and size of future adjustments to the target range for the federal funds rate, the committee will assess realised and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.”

In its statement on the Fed’s meeting, the committee confirmed that it expected only gradual increases to the federal fund rate, but that any future decisions would be based on incoming data.

The committee’s fund rate projections see median rates set at 1.4 percent in 2017, before finally hitting and marginally surpassing the Fed’s 2 percent target to sit at 2.1 percent. In the long term, the Fed currently foresees median rates returning to a more familiar 3 percent after 2019.

David Absolon, investment director at Heartwood Investment Management, said: ‘‘As expected the Fed went slightly more hawkish in projecting the future interest rate path, but it is no game changer.”

“The difference to last December is that this time inflation has a positive impulse. The market reaction in the next few days is not irrelevant, but it will be in January to see whether the market has over-tightened financial conditions.’’

More repo news
The latest news from Securities Lending Times
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
Broadridge completes blockchain bilateral repo pilot
18 October 2017 | New York | Reporter: Drew Nicol
The pilot, conducted in partnership with Natixis and Societe Generale, utilises distributed ledger technology in order to make complex processes “more secure, transparent and efficient”
Repo steps back from the brink
18 October 2017 | London | Reporter: Drew Nicol
The European repo market may be recovering from the severe lack of liquidity experienced at year end 2016, according the International Capital Market Association
Philippines repo market to launch in November
09 October 2017 | Manila | Reporter: Drew Nicol
The launch of a repo market was first proposed by Espenilla’s predecessor Amando Tetangco Jr in August 2016
Pilot repo survey reveals Japan as regional activity centre
26 September 2017 | London | Reporter: Jenna Lomax
The survey, which was the first of its kind carried out by ICMA and ASIFMA, found the majority of repo collateral was made up of Japanese government bonds
LCH launches new buy-side repo clearing model
14 September 2017 | London | Reporter: Drew Nicol
Insight Investment, acting on behalf of a UK pension fund, was the first asset manager to clear a trade through the new model
NSD begins servicing repos with Bank of Russia bonds
23 August 2017 | Moscow | Reporter: Jenna Lomax
National Settlement Depository (NSD), Russia’s central securities depository, has begun using Bank of Russia repo trades as a component of the basket of Bank of Russia bonds (OBR)
Myanmar sees first ever repo transaction
26 July 2017 | Myanmar | Reporter: Jenna Lomax
KBZ Bank and YOMA Bank have carried out the first ever repo trade in Myanmar