Markets reassess Greenspan’s 0.5% looking for the next move

Following the immediate positive market reaction to the US interest rate increase of 0.5% there was a reassessment by some analysts overnight, as the realisation dawned that Greenspan's frequent 0.25% increases in rates may in future become frequent 0.5% increases.

With investors recognising all the Fed’s efforts over the past 12 months have failed to slow the economy or dampen consumers enthusiasm, there appears now only one option for Greenspan: keep on tightening with minimum 0.5% increases until the US economic juggernaut begins to slow.

What may also be beginning to weigh on the minds of those in the market, is the realisation that increases in interest rates have a delayed effect on the economy, with the danger that by the time the signs of a slow down in growth become apparent, significant damage may have been done to future growth prospects.

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