FOMC Raises Rates by 25 Basis Points

The US Federal Reserve raised interest rates by 0.25% to a range of 2-2.25% early this morning as widely expected. Changes to the statement were relatively minor compared to the August statement with the most significant change being that the reference to ‘accommodative’ policy was dropped, implying that the Fed now thinks current interest rates are neutral in terms of the effect on the economy. The so called ‘dot plot’ which shows where voting members expect rates to be in the future are still indicating one more hike for this year and another three in 2019. This year’s final hike is expected to occur in December and according to the CME Fedwatch tool there is an 80% chance of such a hike. This brings us to the rare situation where US interest rates are above Australian rates with a gap that is expected to continue widening. If the US December rate hike occurs it will bring the spread to 1%.  

The Dow Jones had been tracking slightly up throughout the US trading session until the rate decision caused a fairly rapid decline to put the index at an 0.4% loss for the session. It was a similar story for the S&P 500 which closed down 0.33%. US long term bond yields reacted to the news by dropping with the 10-year yield falling 5 basis points to 3.05%. This comes after briefly reaching the seven year high of 3.11% which is beginning to prove itself as a strong resistance level.   

The Reserve Bank of New Zealand also met to decide interest rates this morning but kept rates on hold at 1.75%. ASX 200 futures are down 17 points this morning, presumably as a result of the weak US leads following the rate hike. 

Data Releases:

-    US Durable Goods Orders 10:30pm AEST

-    US Final GDP 10:30pm AEST

This article was written by William O'Loughlin - Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via or by phoning +612 8302 3633.

Complex product warning

This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

This article contains information about CFDs, which are considered complex financial products. Please click here to read ASIC's "Thinking of trading contracts for difference?" document before considering an investment in CFDs.
comments powered by Disqus

DISCLAIMER: Rivkin aims to provide clear and simple information to those visiting our website. If any part of this disclaimer does not make sense, please phone Rivkin and ask to speak with a member of our Dealing and Relationship Management Team. Rivkin provides general advice and dealing services on securities, derivatives and superannuation (SMSF). Rivkin also provide SMSF administration and accounting services. Rivkin does not provide advice that takes into account your, or anybody else's, investment objectives, financial situation or needs. We strongly suggest that you consult an independent, licenced financial advisor before acting upon any information contained on this website. Investing in and trading securities (such as shares listed on the ASX) and/or derivatives (such as Contracts for Difference or 'CFDs') carry financial risks. CFDs carry with them various additional risks that differ from more simple securities such as fully-paid company shares. Some of these risks include not owning the underlying instrument from which a price is being derived, settling trades 'over the counter' with a financial institution rather than on a stock exchange, and using leverage to gain access to trades that may have a higher face value than your initial deposit. This risk of leverage means that it is possible to lose more than your initial investment. Our aim is to create more life choices for our clients, which means improving the wealth of clients throughout many market cycles by nurturing a relationship spanning many years. If you are not comfortable with your understanding of the risks involved before using a Rivkin product and service, please contact our office to seek further information or a Product Disclosure Statement, or make an appointment to sit with one of our friendly financial experts. It is in our interest for your Rivkin experience to be a rewarding and comfortable one. Rivkin is a trading name of Rivkin Securities ABN 87123290602, which holds Australian Financial Services Licence No. 332 802.