The Federal Open Market Committee (FOMC) voted unanimously to increase the target range for the federal funds rate at its December meeting. The FOMC will now target a federal funds rate of 0.50% to 0.75% which is a 25 basis point increase from 0.25% to 0.50%.
Utilities, real estate and consumer staples stocks all led losses with the sectors reporting some of the market’s highest dividend yields. In the Dow Jones Industrial Average, Caterpillar (CAT, Financial) and ExxonMobil (XOM, Financial) led losses.
The rate increase is the first since last December when the Fed also reported plans for further increases in 2016. The Fed’s leading economic indicators, employment and inflation, have been steadily improving in 2016. Gross domestic product (GDP) has also been a positive factor. Payrolls have been showing steady monthly increases and the November jobs report included an unemployment rate of 4.6%. The most recent GDP report showed growth at a 3.2% seasonally adjusted annual rate. Corporate profits also improved significantly with an increase of 5.2% from third quarter of 2015.
Many economists believe the Trump administration will continue to fuel economic growth and inflation with tax cuts and government spending. OPEC’s recent deal to cap oil production is also a significant market factor that will likely increase the inflation rate.
A report from CNBC provided more insight on the Fed’s rate increase.
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