The Fed Awakens

As expected the Federal Open Market Committee (FOMC) raised interest rates a quarter of one percent so that the target range for overnight lending is now 0.25-0.50 percent.

Importantly, the Fed said that rates would rise gradually from here, actually using the word ‘gradual’ twice in the statement.

Also, somewhat surprisingly, the vote to increase rates was unanimous.  I believed, and heard other commentators say, that there would likely be a few dissents, but it appears that Chair Yellen did a good job herding cats.

We can see from the ‘dot plot’ that Fed officials believe there will be four rate increases to 1.375 by the end of 2016 and 2.375 percent to 2017.  That’s lower than previously estimated, pointing to the dovish nature of the action.

I naively hoped that the Fed discussion would ease after leaving the zero bound, but now I have the distinct feeling that we’ll be talking about the Fed more as they assess where rates go from here.

And yes, the subject line is definitely a Star Wars reference.