In a move that had been widely expected by markets, the Federal Reserve has increased US interest rates by a further 25 basis points (bps), marking its third rise since December 2015, as the US economy continues to improve.
Following its two day March meeting, the Federal Open Market committee (FOMC) has increased the Federal Funds Rate in the US to 0.75%-1% up from 0.5%-0.75%. In its forward guidance, the Fed confirmed it expects to stick to its forecast of three rate increases in 2017.
All but one committee member - Neel Kashkari - voted to increase rates again after increasing them to 0.5%-0.75% from 0.25%-0.5% last December. Interest rates moved upwards for the first time since 2006 in December 2015 from lows of 0%-0.25%.
Following the news, the US dollar index, which gauges the value against a basket of half a dozen peers, was hit, falling by 0.7%. Meanwhile, the euro rose by 0.62% against the dollar to $1.00667, while sterling rose 0.84% against the greenback to €1.2257.
As of 6.10pm GMT, benchmark 10-year US Treasury yields had fallen 8bps to 2.53% on the back of the news. Gold prices, which are denominated in US dollars, fell by 0.1% to £1,197.59 per ounce.
Meanwhile, the US S&P 500 was up 0.7%, ahead of Fed chair Janet Yellen's speech. The S&P 500 utilities sector fared particularly well, rising 1.5% on the heels of the Fed's statement, while the real estate sector rose 1.5%.
In a statement, the FOMC said: "Information received since the Federal Open Market Committee met in February indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace.
"Job gains remained solid and the unemployment rate was little changed in recent months. Household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat.
"Inflation has increased in recent quarters, moving close to the Committee's 2 percent longer-run objective; excluding energy and food prices, inflation was little changed and continued to run somewhat below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance."
Meanwhile, in a press conference following the decision, Fed chair Janet Yellen (pictured) said it is "too early" to consider the potential impacts of fiscal policies proposed by US President Donald Trump, adding that they could create "great uncertainty" going forward.
The committee also said that the Federal Funds Rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.
The move was highly anticipated by markets, particularly given that several Fed officials, including Yellen, indicating over the last two weeks that they believed rates should rise.
According to The Independent, the likelihood of a rate rise as predicted by futures markets shot from around 20% to near 100% earlier this week after Fed officials suggested the US economy's gains had moved the bank closer to its employment and inflation goals.
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