After much anticipation, the Federal reserve has finally decided to raise short term rates. This is big news in the investment world since this is the first time the Fed has raised rates in almost a decade and it signals the beginning of the end for the stimulus efforts. It is helpful to remember the sole objectives (set by congress) of the Federal Reserve’s monetary policy is to have “maximum employment, stable prices, and moderate long-term interest rates”. They have officially quantified these objectives to mean 2% inflation and normal unemployment around 4.9%*.
Every Fed decision is solely to achieve balance between these often competing objectives. They have been waiting for the economy to recover and the unemployment rate to decline to raise rates to combat future potential inflation.
“With the economy performing well, and expected to continue to do so, the [Federal Open Market] Committee judged that a modest increase in the federal funds rate target is now appropriate, recognizing that even after this increase, monetary policy remains accommodative,” Yellen said.*
Since the rate increase had been widely anticipated it had been largely priced into the market. We will continue to monitor the situation and recommend adjustments as necessary. Please let us know if you would like to discuss further.