The US Fed raised interest rates by 25 bps from 0.75% to 1%. This is the second hike in last three months. This move is on the back of steady economic growth, strong job gains and confidence that inflation is rising to the central bank's target.
The Fed also stuck to its outlook for two additional rate increases this year and three more in 2018. The central bank lifted rates once in 2016.
However, markets are reacting surprisingly to the fed's decision. Stock markets across the world extended gains. Below chart highlights the performance of several stock markets, gold and dollar index. The chart indicates the performance of market indices from 14 December 2016 and 15 March 2017. This is the period between two consecutive fed rate hikes.
The key reason for the rally is fed reserve's forecast of rate hikes. The forecast is in line with its outlook from December 2016 i.e. three rate hikes in 2017. As per the above chart, Indian stock market outperformed the overall market and registered an impressive gain of 11%. Similarly, stock markets in the US and the UK increased by 5.8% and 6% respectively.
On the other hand, the US Dollar Index tumbled on the back of a dovish outlook from the Fed. The weaker dollar is helping commodities like gold. Gold is up 5.5% since mid-December 2016.
Data Source: Yahoo Finance