THE FED RAISES BY 25 BASIS POINTS; SIGNALS FOR THREE MORE IN 2017

The last time the Fed raised was in December of last year, which then soon gave birth to a currency crisis and China became unhinged — making way for the worst January in the history of the stock market.

The initial reaction by the markets is to jack stocks higher and give rise to King Dollars. Everyone knows how great a runaway dollar is for exporters, right?

The euro is lower by 0.45% and the Yen by 0.72% to the 116 level.

Short term yields are spiking, which is normal when you think the Fed will raise more than previously expected. The market is viewing the Fed’s statement as hawkish.

#Breaking – The Federal Reserve votes unanimously to raise Fed Funds rate by 0.25%, increases forecast to 3 rate hikes in 2017. pic.twitter.com/qvqra8EBJB

— FOX Business (@FoxBusiness) December 14, 2016

Highlights.

Source: Briefing.com

Fed says labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-yearJob gains have been solid in recent months and the unemployment rate has declined.

Household spending has been rising moderately but business fixed investment has remained soft. Inflation has increased since earlier this year but is still below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports.

Market-based measures of inflation compensation have moved up considerably but still are low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.

The Fed is signaling for 3 hikes in 2017, one more than previously expected. Naturally, with the economy doing so great, 2% GDP, and inflation out of control, sub 2%, this makes sense.

As widely expected, the @FederalReserve hiked by 25 bps. More interestingly, #Fed officials are now signaling more hikes-3 in total-for 2017

— Mohamed A. El-Erian (@elerianm) December 14, 2016

UPDATE:
Stocks are no longer celebrating policy designed to literally kill it. The NASDAQ is pressing lower.

UPDATE: The 2yr bond yields are blowing out, now higher by nearly 6bps — the highest since 2009.

Crude is lower by nearly 4%.