The U.S. Federal Reserve announced on Wednesday that it will raise interest rates a quarter point to 0.5-0.75 percent, an unsurprising note that sent the dollar to highs not reached in nearly 14 years, with the dollar index hitting 102.62. 10-year U.S. Treasuries yields rose to 2.584 percent and two-year Treasury paper spiked more than 10 basis points to 1.28 percent, the highest daily rise since early 2015.
Oil prices stabilized following the Fed announcement, with International Brent crude oil futures trading at $54.02 on Thursday morning, up 12 cents from its prior close. U.S. WTI crude oil futures traded at $51.02 per barrel.
Where are U.S. Interest Rates Going?
The Fed’s future policy path, known as the ‘dot plot’, has been adjusted due to expectations that incoming U.S. President Donald Trump will expand growth. At least 17 of the Fed policymakers seem to have shifted their outlook since September. The dot plot showed a median of three rate hikes next year, up from the two rate hikes originally expected. In her statement following the Fed announcement Fed Chair Janet Yellen said that Trump’s election had put the central bank under a “cloud of uncertainty” and that “all the (FOMC) participants recognize that there is considerable uncertainty about how economic policies may change and what effect they may have on the economy.”
Following the Fed’s announcement it seems as though the three rate hikes in 2017 would be followed by three more hikes each in 2018 and 2019, creating a stable long-term interest rate of 3 percent. The Fed expects unemployment rates to drop to 4.5 percent in 2017, which is considered close to full employment. The economy is expected to grow 2.1 percent next year, a slight increase in projections from the prior expectation of 2.0 percent.