The Fed's interest rate decision was highly expected this week. The U.S. dollar was supported by the Fed's interest rate hike. The Fed on Wednesday raised its interest rate to the range 0.25% - 0.50% from 0.00% - 0.25% as widely expected by analysts. All Federal Open Market Committee (FOMC) members voted for the interest rate hike. The Fed repeated that further interest rate hikes will be gradual.
The impact of the Fed's interest rate hike on the U.S. dollar was moderate.
Market participants will focus on further interest rates now. The Fed expects its fed-funds rate to be 1.375% by the end of 2016, 2.375% by the end of 2017, and 3.25% by the end of 2018. That means that the Fed plans to raise its interest rate four times next year. If the Fed reaches its target, it is written in the stars. The U.S. manufacturing sector remains weak and inflation remains low.
It needs time to see which effect the Fed's interest rate hike will have. Commercial banks will raise its lending rates. Some borrowers may face problems with higher lending rates.
Financial markets are likely to volatile in the days of the year, due to lower liquidity. Stock markets are likely to be focussed on oil prices, while the foreign exchange market is likely to be driven by speculation on further interest rate hikes by the Fed.
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