US Fed hikes rates

The future appears a little bit brighter after the United States’ Federal Open Markets Committee (FOMC) announced an interest rate increase on 25 points on US rates on Thursday morning. Markets had been expecting an increase in interest rates since mid-May, when Federal Reserve chairman Dr Alan Greenspan first signalled that an increase in rates was likely. However, the markets had been divided over the size of the increase, and whether it would be just a one-off move, or a complete change in policy direction by the powerful Federal Reserve Board.

The increase of 25 points, bringing the US cash rate to 5.00%, was a relief to markets who had been unsure of the size of the increase. But as much of a relief was the news from the FOMC that it was currently in a neutral position on rates. To markets who had expected further increases in interest rates, this was exactly what they wanted to hear, and it would appear that US rates are on hold, at least for the short-term.

This is mirrored by the current position held by the Reserve Bank of Australia, who stated in mid-June that any change in US rates would not need to be reflected by a similar change in Australian rates, and that Australian rates were currently ‘on hold'. We can expected to see fixed rates drop over the next couple of weeks, as this view is taken onboard in the money market. So, it would appear, that rates are likely to remain unchanged, both here and in the US, for the next six months.