The Federal Reserve Chair Janet Yellen announced on Wednesday afternoon (Thursday morning PHT) that the central bank decided to increase the interest rate by 25 basis points, making it to 0.75 to 1 percent. US stocks reacted positively, but the ICE Dollar Index (DXY) declined due to the “dovish hike” of the Fed. Overseas stocks have mixed reactions following the Fed’s decision.

The Dow Jones Industrial Average (DJIA) rose 112.73 points, or 0.5 percent, to end at 20,950.10. The S&P 500 index (SPX) advanced 19.81 points, or 0.8 percent, to finish at 2,385.26. The Nasdaq Composite Index (COMP) advanced 43.23 points, or 0.7 percent, to 5,900.05.

“With little change to future expectations, investors interpreting the event as being rather Goldilocks, in that the trajectory of future rate hikes will likely remain gradual,” Market Watch reported Eric Wiegand, senior portfolio manager at the Private Client Reserve, as saying. He added that the dovish outlook on the inflation could sustain market multiples.

DXY decline

The DXY, which measures the greenback against a basket of six other currencies, went down to 1.18 percent to close to 100.56. Analysts said that the market was expecting of a more hawkish outlook from the Fed and this dovish stance of tightening the cycle added concerns.

“The fact that long-term interest rates and the dollar plunged suggests that the traders were disappointed that the Fed forecast of rate hikes for this year did not shift,” Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, said. He added that the Fed simply wanted to normalize the market rather than pushing the dollar too high.

Yellen said that Committee participants had varied views on the appropriate monetary policy, but the median projection for growth of inflation-adjusted gross domestic product is 2.1 percent this year and next and edges down to 1.9 percent in 2019. This is slightly above its estimated longer-run rate.

The so-called dot plot chart of where policy makers expect rates to be over the course of the next three years hasn’t changed much. This signaled to two additional rate hikes this year, in line with previous forecasts.

Other Markets

Overseas trading had mixed reactions following the Fed’s decision to increase interest rates. Japan's Nikkei 225 Index edged down by 0.2 percent, while China's Shanghai Composite Index inched up by 0.1 percent. European indices, however, moved higher with U.K.'s FTSE 100 Index, the French CAC 40 Index and the German DAX Index all moved up by 0.2 percent.

Locally, the Philippine Stock Exchange index (PSEi) closed lower by 7.96 points or 0.11 percent to close at 7,253.79 on Tuesday, as investors braced for the final decision of the Fed. Joylin Telagen, research analyst at IB Gimenez Securities Inc. said that the market could break 7,300 or move towards 7100 following the Fed’s press statement on the normalization path.

What do you think of Fed’s decision to increase the interest rate, with US stocks going up? Let us know in the comments section below.

Also read: Three Reasons Why The US Fed Is Likely To Raise Interest Rates