Fed Surprise Move

News:
The U.S. Federal Reserve made its first interest rate move since December 2008, hiking an emergency lending rate it charges banks from 0.5% to 0.75%, but insisted borrowing costs would not rise for consumers or companies.

Thought:
Everyone knew it was coming as the Fed hinted in the last policy meeting, but no one expected it happened so soon and in between meetings. The discount rate increase is just a symbolic move. It will not have significant effect because the borrowing facility is only for banks and is seldomly used recently as the financial market stabilized. However, by the action, the Fed sends out a clear signal that the economy is on firmer footing and it will raise the Fed fund rate not too far away to prevent inflation out of leash, although it said the opposite during the announcement.

The move may initially affect the market negatively. But, for long term, the market will ascent for the years to come as suggested by history. Interest rate increases after recession when inflation is still moderate is a proof of growing economy. The US Dollar, especially the Dollar and Yen pair, will also be benefited by the future rate hikes.

On the other hand, company M&A activities have picked up pace in the last few weeks to reflect greater confidence in the economy.