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Published: Fri, March 17, 2017
Research | By Elias Hubbard

Meidell: Market upbeat after Fed rate hike

Meidell: Market upbeat after Fed rate hike

IT comes as no surprise that the United States Federal Reserve (Fed) has raised its base rate to between 0.75% and 1%, as a stronger U.S. economy prompted a second hike in USA interest rates in just under a decade.

The Federal Reserve raised interest rates by a quarter of a percent Wednesday, signaling a strengthening economy.

Gordon Sun (孫明德), director of the Taiwan Institute of Economic Research's Economic Forecasting Center, agreed, saying that the USA remains at an early stage in an interest rate hike cycle and the latest move did not surprise the capital market at all. "Household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat", the Fed statement said.

Economists expect the Fed to raise rates gradually two to three more times in 2017.

Senior Fed officials, including Federal Reserve Board Chair Janet Yellen, had hinted toward the rate hike throughout March. That's bad news for United States bond investors-prices fall when yields rise-but they've had a good run.

The rate hikes, he said, can be viewed as positive signs that the economy continues to be strong and not headed into a recession.

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When it comes to mortgages in particular, most experts don't recommend refinancing based on one rate hike alone, which may raise monthly payments by just $10 to $20. The Fed first raised the benchmark interest rate it controls in December 2015, saying the economy was showing enough strength to justify slowly raising rates back above zero.

According to the policy statement, risks to the outlook remained "roughly balanced".

When Fed Chair Janet Yellen was pressed on this during her post-announcement press conference by Bloomberg TV's Kathleen Hays, Yellen said "GDP is a pretty noisy indicator" and talked up ongoing evidence of labor market tightness (potentially leading to an acceleration of wage inflation), especially with demographic headwinds (retiring baby boomer) likely to weigh on labor force participation.

"The contributing factor to the rise in Sibor and Sor for this year is the rise in Libor, which is due to the expectations of two more rate hikes this year", said UOB economist Francis Tan.

Patrick Lewis, a real estate agent in Scottsdale, said the Fed's decision to increase its key interest rate is "great news" and that consumers need not fear rising interest rates when they look for a loan.

On Thursday morning, the South Korean won and Singapore dollar were among those that gained muscle against the US currency, with the won strengthening to around 1,130 from Wednesday's 1,145, and the Singapore dollar strengthening to 1.40 from the previous day's 1.41. Meanwhile, the average rate on a 1-year CD is 0.33%, only slightly up from 0.28% a year ago. It had been 0.5 percent to 0.75 percent.

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