Fed Raises Rates for First Time This Year, Signals Three Increases for 2017

December 12, 2016

As expected, the Fed increased rates by 25bps, but also indicated expectation of three 25bps increases in 2017. From our head bond trader in NY: “The 25bps not a surprise; the 3x25bps next year provides clarity.  In an historical context, fed funds at 1.50% is still pretty low. Price wise, government bonds higher in yield by a couple of bps on long end, maybe couple extra more on front end of curve. Very mild flattening.”

According to the Wall Street Journal, The Federal Reserve said it would raise its benchmark short-term interest rate for the first time in a year and expects to lift it faster than previously projected in the coming year.

Fed officials said they would nudge up the federal-funds rate by a quarter percentage point on Thursday, to between 0.50% and 0.75%, a move that could cause other household and business borrowing costs to rise as well.

They also indicated they see a brightening economic outlook and expect to raise short-term rates next year by another 0.75 percentage point--likely in three quarter-point moves.

See HERE for first look at %’s of implied probabilities of timing of future FOMC meeting rate moves.