Fed Raises Interest Rate for First Time in a Year

Although the FOMC decided to raise rates by 25 basis points, the move to accelerate the pace of future tightening caught financial markets off guard. According to the statement, the Federal Reserve is currently anticipating three rate hikes for 2017 instead of the two hikes projected in September, adding to the hawkishness of the latest decision as the economy approaches full employment.  The dollar immediately reacted to the development, with the US Dollar index rising to a 14-year high while slamming precious metals and stocks lower.  During the press conference, Federal Reserve Chair Janet Yellen was repeatedly questioned about President-elect Trump’s proposed stimulus measures.  In her remarks, she stated that the economy might not require stimulus and that instead the government should pay more attention to the debt-to-GDP ratio.  Gold fell precipitously following the announcement, tumbling as low as $1134.81 per troy ounce.

With the OPEC deal gradually fading from focus, the attention has now been turned to the US energy landscape as production continues to gain on the back of higher crude oil prices.  The evidence comes from last week’s drill rig count which rose by 21 rigs to 498 total in operation according to oil services giant Baker Hughes.  Accompanying this gain in drill rigs was one of the largest increases in US oil output in recent memory, with production climbing nearly 100,000 to 8.796 million barrels per day compared to 8.697 a week earlier.  Even though oil in onshore storage fell by more than expected during the same period, Cushing inventories continue to build, rising to the highest point since early June.  Stockpile figures are higher than a year earlier across the board, adding to storage concerns.  After tumbling Wednesday, WTI is trending back towards $51.00 per barrel.