Bangkok--30 Dec--Marketing Communications Thailand
Janet Yellen delivered broadly what investors had expected on Wednesday – perhaps fortunately so, given that there has rarely been such a market consensus in anticipation of a central bank decision, according to Lucy O'Carroll and Richard Dunbar, Edinburgh-based chief economist and senior investment strategist, respectively, at Aberdeen Asset Management ('Aberdeen').
So far equity, bond and currency markets have taken the decision in their stride, they say, although the expected pace of interest rate rises, as outlined in the dot plot, is perhaps slightly quicker than some investors had expected.
(The dot plot is a chart that maps the predictions of the federal funds rate by FOMC participants.)
However, the accompanying text offers reassurance that any further decisions on interest rate rises will continue to be weighed carefully, in the light of the Federal Reserve's view on the US economy, allied with readings on financial and international developments.
According to O'Carroll, the unanimous decision on Wednesday by the Federal Reserve represents a vote of confidence in the US economy.
"The strength of the world's largest economy is a rising tide that has, and will, lift many boats. If the Federal Reserve's confidence is justified, many economies and markets are likely to benefit from this economic growth, notwithstanding this small rise in the price of money accompanying Wednesday's announcement. "
Dunbar adds: " The path from 'extraordinary' to 'ordinary' monetary policy is unlikely to be a straight one. Caution is advised. But one step closer to 'normal' feels like progress on this long journey, and has been welcomed by investors."
Patrick Maldari, a senior fixed income specialist with Aberdeen in New York notes: "The Fed delivered what was expected. Now, as we enter 2016, the debate will turn to the pace of future rate increases. FOMC members believe that a slightly quicker pace of tightening will be warranted by the end of 2016, compared to what is priced into the market. Clearly, their action will be data dependent, but regardless of what they want, the market will determine the path of rates, especially when it comes to the long end of the Treasury yield curve. If the price action after the announcement is any guide, then long-term rates appear to be well supported."
Neil Murray, Aberdeen's head of global developed markets based in London, comments from a European perspective: "Everyone knew what was coming so the market reaction has been quiet so far. The main fallout is the Euro weakening against the dollar. We saw it run up after the last ECB meeting when Draghi disappointed by doing less than the market wanted. Now the Euro is selling off as markets digest the reality that the ECB is starting to prime the pumps just as the Fed starts its slow grind upwards on rates."