US FED HIKES RATES; TRIMS 2019 HIKES TO TWO

Whew! The expected happened. The Fed Reserve hiked US interest rates by 25 bps, the fourth and the last for 2018.

More importantly, the most anticipated point – what to expect in 2019? The Fed signaled a slightly milder path for future increases, hinting at a more tentative kind of stance. The message which comes across loud and clear is that there could be a slower pace of rate hike but there is most certainly no rate cut on the cards in the near future. The forecast has now been trimmed to two rate hikes in 2019 v/s the Sept meet signal of three hikes.

Along with the rate cut, as was also expected, the Fed adjusted the interest rate it pays to banks on excess reserves they park at the Fed, raising the rate to 2.4%, slightly below the top of the range for the fed-funds rate.

Highlights of the Fed statement:

Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2?1/2 percent.

Risks to the economic outlook are roughly balanced

Labor market has continued to strengthen and economic activity has been rising at a strong rate.

Job gains have been strong; unemployment rate has remained low.

Household spending has continued to grow strongly

Growth of business fixed investment has moderated from its rapid pace earlier in the year.

Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. 

Indicators of longer-term inflation expectations are little changed, on balance.

For the Indian markets, this would be a sigh of relief as this was the last major event of 2018. This too is over and done with. So now what triggers? For now, the next 10-12 days will mostly be about winding down 2018. The holiday mood will set in from next week, globally and that will automatically make the Indian markets too a bit slow.

The markets will look at crude price, the fiscal deficit, and then the Q3 numbers. Any policy announcement from the Govt will be taken with a pinch of salt as all know that these are election gimmicks.

Best advice for coming days - Remain focused on the long-term with a diversified portfolio mapped not against market conditions but your individual goals and risk tolerance.