US Fed lifts interest rates, signals more hikes in 2017

The U.S. Federal Reserve hiked interest rates on Wednesday by 25 basis points to a 0.5-0.75 percent target range, signaling more aggressive monetary tightening for 2017.

Members of the Federal Open Market Committee (FOMC) voted unanimously for the rate hike, the Fed said in a statement.

The labor market has continued to strengthen since the committee last met in November, while economic activity has expanded moderately since mid-year, the FOMC said.

Inflation has also increased since earlier in 2016 but remains below the 2 percent longer-run objective.

While the rate increase was widely expected, dot plot projections – or the individual projections of Fed officials regarding interest rates – released on Wednesday were a “slight surprise” as FOMC members forecast three further rate hikes next year, up from the two anticipated in September, Dubai-based Emirates NBD said.

Uncertainty lingers over U.S. economic policy next year following Donald Trump’s victory in the presidential election last month, the lender added.

“The big question-mark remains about what additional impact the Trump stimulus plan might have on growth and interest rates beyond that projected by the FOMC, with uncertainty about when it will be rolled out and over how much of it will be implemented.”

The Fed rate hike will prompt monetary tightening across the Gulf in 2017 as central banks in the region follow suit, analysts said.

“[Gulf] policymakers will be forced to follow the U.S. Federal Reserve and hike interest rates. As a result, growth there is likely to stay subdued,” Capital Economics said in a recent report.

Emirates NBD echoed this view, noting that firmer interest rates and the accompanying strength of GCC currencies are likely to be further headwinds to regional growth next year, in addition to recently announced OPEC cuts in oil production.

Write to Jerusha Sequeira at jerusha.s@argaamnews.com