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Fed Raises Rates As Expected, Upgrades Growth Outlook
The markets ended modestly lower except for the Russell 2000 Small-Cap Index which gained an outsized 0.57%. (As I've mentioned before, always good to see the 'riskier' small-caps outperforming as it shows an appetite for risk and is a bullish sign.)
The Fed met the markets expectations and raised interest rates by a quarter point. That now puts the Fed Funds rate at 1.50-1.75%. Still very accommodative. And they intimated that there would be two more rate hikes this year for a total of three in 2018. This is down from the recent suggestion of four given the surge in growth. But the announcement puts that number back at three which the market has deemed 'dovish'.
And while the Fed upgraded their assessment on the economy, citing that "the economic outlook has strengthened in recent months", they also noted that "household spending and business fixed investment have moderated from their strong fourth-quarter readings". But it's clear their outlook remains optimistic with their 2018 GDP forecast revised up to 2.7% from 2.5%, and 2019 GDP revised up to 2.4% from 2.1%.
As I commented yesterday, assuming there were no surprises from the Fed (there weren't), I believe the quarter point rise in rates will have a longer-term bullish effect on the market, display their confidence in the economy, and at the same time confirm that they will take a slow and measured pace when raising rates. Looks to me like that's exactly what we got.
And I expect the market to soon begin a whole new leg higher.
See you tomorrow,
Kevin Matras
Executive Vice President, Zacks Investment Research
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