The federal reserve raised interest rates yesterday by one quarter point. This move was widely expected by the markets which explains the subdued market reaction in both the fixed income markets and stock markets following the announcement. They did however make note that they are aware and will monitor the recent inflation data which has come in softer than expected.
Most fed members see one more rate hike this year and most see an additional 3 rate hikes in 2018.
Lastly, what the market really wanted to hear more about was how the Fed would tackle the size of their balance sheet which exploded higher due to quantitative easing or QE. This reduction will begin later this year and will continue on a gradual basis over the next several years.
We will continue to monitor the effects a balance sheet unwind will have on your portfolios. But, in short, we believe this to be another reason to expect rates to move higher over time – which we are prepared and currently positioned for.