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In the US, the Federal Reserve made the long awaited decision to raise interest rates in mid-December. Markets took it in their stride, interpreting it as a sign that the Fed believes the economy to be on a stable footing with enough growth momentum to withstand a small increase in the cost of borrowing. Most major equity indices rose slightly following the announcement and the reaction in the bond market was quite muted. The highly telegraphed nature of the move limited its impact on market prices and the Fed reaffirmed its commitment to a gradual trajectory of rate rises over the coming years.
The central estimate of members of the rate setting committee projects four further rate hikes over the course of 2016 with rates stabilising at between 3% and 3.5% over the medium term. Market participants are currently pricing in just two more hikes over the course of next year, leaving open the possibility for some spells of volatility if the Fed does not communicate its intentions more clearly as further rate hikes approach.
Source : RICS
