The Fed raised it benchmark fund rate to a target range of 0.25% to 0.5%, ending the covid era of almost free money. This will have a direct impact on mortgages (although still very low) car loans and credit card payments for US consumers.
DJI rose 1.55%, to above 34k level, S&P rose 2.24%, and the Nasdaq Composite added 488 points, rising by 3.77%.
Markets were already in good mood over diplomatic developments on the Ukraine issue, and China’s promise to roll out more stimulus for the economy and keep markets stable added to the positive outlook
Fed announced a raise in the target range for the federal funds rate to 0.2 5 to 0.5%, as was widely expected. But indication that benchmark rate could reach a level between 1.75% to 2% was considered more hawkish by some.
The Fed had termed inflation as transitory about a year ago. Data released last week shows US inflation at 40 years high.
The 30 year fixed rate mortgage had averaged 3.85% last week. Although still cheap historically, it is substantially up from under 3% in November last year.
Following in the Fed's footsteps GCC countries increased rates as well. Saudi Arabia raised repo rate by 25bps to 1.25%. UAE increased the overnight deposit rate by 25bps. Kuwait increased the discount rate by 25 bps to 1.75%. Bahrain raised key policy rate to 1.25%.
See part of the Fed statement. “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.”
Full Fed Statement.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20220316a.htm