Fund managers and economists are predicting what the first US Federal Reserve interest rate rise for nine years will mean to the markets.
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Federal Reserve chair Janet Yellon announced hiking the rate from 0.25% to 0.5 after spending two-days discussing the pros and cons with the Federal Open Market Committee.
Here’s a round-up of some of the reaction from financial firms:
Time to keep calm
Mark Wharrier, who co-manages the BlackRock UK Income Fund, said: “Just because the rate has increased is no time to overreact. Recent years have given us ultra-low interest rates and this is the first step on the road back to the new normal.
“Some things will change, and we’re trying to look through the publicity for the truths that lie behind the headlines.
“Other central banks will undoubtedly follow the Fed lead, especially the Bank of England, but probably later in the year and an equally small shift.”
Emerging market debt scrutiny
Financial firm Schroders suggests that investors might want to re-examine the position of emerging market debt in the wake of the rate rise which will strengthen the US dollar.
James Barrineau, one of the heads of the firm’s emerging markets debt relative, said: “The rate rise was not unexpected and probably overdue.
“Emerging markets are likely to suffer the biggest impact given that average currency in the class has dropped off 40% since May 2013.
“We are waiting to see how a strengthening dollar will affect the yield of emerging market bonds.”
Rate rise is career first for many
Ian Kernohan, economist at Royal London Asset Management, points out that this is the first rate rise many economists and finance professionals have seen in their careers
“The focus is moving away from when rates will rise to how much,” he said.
“I’ve heard some people say that this increase is a policy error and may need to be reversed, but I think the Fed is dovish and knows what it is doing.
“Where we go from here depends on how the markets and the US economy reacts to the increase and whether the US keeps producing strong economic data over the coming months.”
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