The Fed is out of the way — at least for now
Finally! It’s about time! You finally did it! Really?
That was the reaction of many Wall Street pros after the Janet Yellen-led Federal Reserve on Wednesday kicked off its move to normalize interest rates by hiking short-term borrowing costs a quarter of a percentage point, its first increase since 2006.
Short-term rates no longer are pegged at 0%. The rate is now set at 0.25% to 0.50% — still a very low rate by historical measures. Wall Street seemed relieved by the Fed’s decision to get the first rate hike out of the way, as the will-they or won’t-they dialogue has served as a major uncertainty and headwind for stocks in 2016.
The market got what it wanted: a tiny rate hike and reassurances from the Fed that it will take a “gradual” approach to future hikes, so as not to derail the economic recovery that has grown stronger amid job market gains.
Stocks reacted positively Wednesday, with the Dow Jones industrial average climbing 224 points to 17,749, its third straight day of triple-digit point gains.
With the Fed now out of the way until next year — and the impact of the rate increase still largely unknown in other corners of global markets — markets will go back to focusing on business fundamentals like holiday retail sales, job growth and other data points that provide insight into the profit potential of U.S. companies.
The Fed’s rate hike might also pave the way for a Santa Claus rally, something that didn’t look possible last week when stocks sold off amid fears of a meltdown in the high-yield bond market.
In pre-market trading today, the Dow was up 70 points, or 0.4%.