Markets react to US Fed's big 2017 plans

As Janet Yellen lets Donald Trump know she's going nowhere...

Markets react to US Fed's big 2017 plans

Susan Walsh / AP

The markets weren't surprised by the US Federal Reserve's decision to raise its headline interest rate on Wednesday, though there was a shock in store as Fed chair Janet Yellen revealed that they could expect three further hikes in 2017 alone.

The move to raise interest rates by 0.25% to between 0.5% and 0.75% was only the second such hike in rates in almost a decade and the first since a similar adjustment in December 2015.

The prognosis for next year was more aggressive than anticipated, signalling that inflation and interest rates are now firmly on the rise and a clear vote of confidence in the US economy.

Fed chairwoman Janet Yellen noted that "growth is a touch stronger, unemployment is a shade lower", but exercised caution when talking about 2017, suggesting that the following hikes will be modest.

She said:

“My colleagues and I are recognizing the considerable progress the economy has made towards our dual objectives of maximum employment and price stability.

“We expect that the economy will continue to perform well, with the job market strengthening further, and inflation rising to 2% over the next couple of years."

A year ago, the Fed predicted there could be four interest rate increases this year, but because of caution over China, Brexit and the US elections themselves, last night’s announcement proved to be the first.

The dollar strengthened after the announcement – it was trading just below 1.05 against the euro this morning – and US stock markets that had been roaring into record high territory wobbled late yesterday afternoon.

Laura Devoy of Goodbody told Newstalk's Breakfast Business that she believed equities could move higher again over time as the market understood the sound economic reasons for last night’s decision.

Yellen also took the opportunity to let US President-elect Donald Trump know she is not going anywhere. Trump ahs been highly-critical of the New York economist, 

Federal Reserve chair Janet Yellen said she's not going anywhere, despite Trump's heavy criticism of her during the campaign. In September, he told CNBC that she should be "ashamed of yourself" for keeping interest rates low and creating a "false stock market".

 She responded at yesterday's press conference:

"I'm not going to offer the incoming president advice about how to conduct himself...

"I do intend to serve out my four-year term. I'm a strong believer in the independence of the Fed."

Yellen's term ends in February 2018.