The U.S. Federal reserve just raised interest rates for the first time in nearly a decade. The central bank hiked rates by 25 basis points bringing the Fed Funds target rate to .25 to .50 percent. Today’s hike brings the end to a seven year run of near-zero interest rates and was initiated with a vote of 10 to 0.
The central bank also lifted the discount rate to one percent from .75 percent. The Fed reiterated that the pace of any further hikes is likely to be very gradual while the central bank also maintained its initial long-run target of 3.5 percent.
Of particular note was the Fed’s outlook on the labor market and the economy. The central bank’s economic outlook was unchanged from its October meeting as the Fed sees economic growth expanding at a moderate pace. The Fed also mentioned that continued improvement in the labor market “confirms that under-utilization of labor resources has diminished appreciably since early this year.”
The Fed did also make note that changes in the fed funds rate would be data-dependent on an ongoing basis.
Gold and silver both saw a little pop higher following the news, although nothing to write home about.
Now that lift-off has been initiated, the question becomes what investors will focus on next.
Stocks are higher following the news as investors may be pleased over the Fed’s economic assessment. Equities could potentially rally further into year’s end, in a good-old Santa Clause rally.
As far as silver and precious metals go, however, their path from current levels remains unclear. While today’s hike was essentially “baked into the cake,” the metals may still be lacking a significant catalyst that could drive prices higher. Perhaps the dust will need to settle a bit before more movement is seen in the complex.
That being said, the metals could potentially rally now that the first hike is out of the way in what might simply be “sell the rumor buy the fact” type of trade. At this time of year, however, investors may be content to remain sidelined until the beginning of next year.
After an initial burst higher, the dollar index is trading back near the unchanged mark. While the greenback has been weaker in recent trade, a resumption of its uptrend could potentially keep silver and gold under a degree of pressure. Should the recent dollar decline continue, however; it could potentially give silver a much-needed boost going into the end of the year and possibly beyond.