WASHINGTON, December 14, 2016 – The Fed has just announced what investors have long expected. With Election 2016 over and done with (more or less), the Federal Open Market Committee (FOMC) has unanimously voted to increase its target interest rate range from the current 0.25-0.50 percent to a new range of 0.50-0.75 percent, effective on January 1, 2017.
In addition, the Fed also greenlighted the interbank discount (aka, the primary) credit rate from 1 percent to 1.25 percent.
Looking ahead, the FOMC tentatively projects three additional interest rate hikes in 2017, up to three more in 2018, and yet another interest rate increase trifecta in 2019. The series of hikes are projected to end with a targeted interest rate of between 2.9-3.0 percent by the beginning of 2020, which, coincidentally (or not) is the year the U.S. is scheduled to hold its next national election.
Stocks were more or less flat Wednesday afternoon as traders awaited the Fed’s 2 p.m. announcement. (It’s likely that insiders already had the news but didn’t tip their collective hands in the morning trading session.) The Dow quickly jumped as the interest rate news hit the tape, briefly tagging the 20,000 level before quickly backing off again to stand at 19,895.49 as we write this report at approximately 2:25 p.m. EST.
UPDATE: The Dow is off slightly more than 0.40 percent as of 3 p.m. EST, to stand at 19,830, down 80.66 points. The broader based S&P 500 is off half a percent and the tech-heavy NASDAQ is off slightly, down 0.28 percent.
Markets could end flat to down this afternoon, not necessarily because of the Fed announcement, which was widely expected, but instead because the averages simply need to simmer down a bit if they’re to keep the Trump-Santa Claus Rally of 2016 moving along without experiencing and extreme-overbought crash. As much as we’ve been enjoying this bull move here, stocks can get too far ahead of the actual economic news, causing averages to correct suddenly and violently to shake out the excess.