As widely expected, the Federal Open Market Committee (FOMC) raised the Federal Funds target by 25 basis points yesterday. Significantly, the all-important Dot Plot did not reveal any major change. Since the hike was already priced into the markets, the absence of increased hawkishness should bode well for the equity markets in the short term.
Meanwhile, this week’s release of the February consumer price index showed a monthly gain that may not have seemed like much, but it is quite significant from a big picture perspective: the meager 0.1%month-to-month gain brought the year-on-year change up to 2.7% from the 2.5% that it had hit the month before.
We believe the plunge in real rates is likely to put the dollar under additional pressure. A falling dollar would reinforce our bullish position on gold and gold miners, and on emerging markets. It won't hurt oil stocks either. However, it is likely to be an additional negative for the long-duration segment of the fixed income markets.