U.S. Fed hikes rates by 25bps, may hike again mid-2017 – Nordea Bank

As was widely anticipated, the U.S. Fed hiked the fed funds rate by 25 basis points to a target range of 0.50-0.75 percent. This is the first rise since December 2015. It was a unanimous decision to hike the rates. Furthermore, the Fed’s new projections indicate it expects three rate hikes in 2017, noted Nordea Bank in a research report.

During the press conference, Fed Chair Janet Yellen stated that the decision to hike rates reflects the confidence in the economy. The central bank reiterated its view that the pace of rate hikes would be gradual and that policy is dependent on data. According to the median forecasts, FOMC officials expect rates to be hiked by 75 basis points next year, 75 basis points in 2018 and 75 basis points in 2019. In all, the U.S. central bank now foresees six rate hikes of 25 basis points each until the end of 2018.

With respect to risk assessment, the near-term risks to the economic outlook were still said to be “roughly balanced”, implying that the next rate rise is not imminent but sometime in the future, said Nordea Bank. The U.S. Fed’s economic outlook was mainly unchanged from its previous forecasts in September, possibly reflecting the elevated uncertainty regarding the outlook for U.S. fiscal policy.

“The bottom-line message remains that Fed policy will most likely begin the next year by maintaining a gradual approach to rate hikes and will respond to potential fiscal stimulus only once it's actually in place and the data warrant additional action”, according to Nordea Bank.

Until additional details regarding Trumponomics is clear, the U.S. economic and monetary policy outlook is subject to mounting uncertainty. The timing of the next move is quite unclear currently; however, the U.S. Fed’s next rate hike is unlikely to take place until around mid-2017, added Nordea Bank.

At 05:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 115.597. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex