FTSE 100 stocks responded to the news with moderate enthusiasm, with the index rising 1.34% during the first two hours of trading.
With the Fed finally firing the starting gun on a tightening cycle, investors of all stripes have quickly turned their attention to weighing up how quickly the central bank will move through the gears. This is likely to be a harder task and even less exact science than forecasting when the first rise would come, and chair Janet Yellen’s commentary was typically balanced and ambiguous.
“There was something for both the doves and the hawks,” noted David Absolon, investment director at Heartwood Investment Management. “The language of the monetary statement supported the widely held view that this rate cycle would be “gradual” in a moderate growth environment. The Fed also committed to monitoring ‘actual’ inflation as well as survey expectations to achieve its inflation goal.
“Furthermore, the Fed made a strong statement about keeping its balance sheet unchanged for a long time,” Absolon added.
Joshua Mahony, market analyst at IG had similar thoughts: “The fall in volatility, as encompassed by the VIX, was evidence of the fact that this was a perfectly stage-managed event which, despite providing very little for doves to get too excited about, still saw indices rally,” he said. “Today marks the beginning of a new phase for the Fed whose new norm will be about raising rates rather than maintaining them.”
