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Fed Raises the Interest Rate: What Does It Mean for Investors?

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Fed Raises the Interest Rate: What Does It Mean for Investors? PART 1 OF 5

Does the Fed’s Rate Hike Indicate a Stronger Economy?

Fed hikes its key interest rate 

On March 15, 2017, the Fed announced its much-awaited interest rate hike—the first increase this year. It’s the third rate hike in the past decade.

Does the Fed’s Rate Hike Indicate a Stronger Economy?

Does the Fed’s Rate Hike Indicate a Stronger Economy?

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The FOMC (Federal Open Market Committee) increased the federal funds rate 0.25% to 0.75%–1% on March 15, 2017. Market participants welcomed the news. Most US indexes reacted calmly and ended on positive notes.

Economic impact

Market participants expected a rate hike at the March 2017 meeting. According to the CME Group FedWatch Tool, the probability of a rate hike (75-100 basis points) rose to 95.2% from 40% last week. After the meeting, Fed Chair Janet Yellen said that “the economy is doing well.” Her statement indicates that the economy (VFINX) (IWM) (VOO) is showing a stronger move.

Many market participants expected a much more hawkish stance from the Fed. However, policymakers’ decision indicates that the Fed is less hawkish on its monetary policy. Consumers played an important role in the rate hike. Improvement in consumer spending and the inflation index helped policymakers decide that the economy (SPY) (QQQ) is doing well.

In the next part of this series, we’ll analyze how the market reacted to the Fed’s rate hike decision.

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