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Stocks flat as investors review hawkish Fed hike

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Stocks in London were little changed in early trade as investors digested a 25 basis points rate hike by the Federal Reserve, as anticipated, but a more hawkish tone than expected.

At 0830 GMT, the FTSE was down just 0.1% to 6,940.20. Meanwhile, oil prices were fairly steady, with West Texas Intermediate down 0.2% to $50.94 (£40.62) a barrel and Brent crude up 0.2% to $54.00 (£43.03).

On Wednesday, the Fed raised the range of its main policy rate to between 0.50% and 0.75% and signalled that more interest rate increases were on the cards for next year than it had at the meeting in September. Rate-setters in Washington were unanimous in their decision to tighten policy.

According to the newly-submitted ‘dot-plot’ graphs of interest rates projections from the Federal Reserve’s board members and regional Fed presidents, the median expectation is for three quarter-point interest rate hikes in the following year, up from two previously.

A further three hikes were projected in 2018, followed by another three in 2019.

Spreadex’s Connor Campbell said: “Raising rates by the expected 0.25%, marking only the second hike in a decade, Janet Yellen struck a hawkish tone on Wednesday despite warning of a ‘cloud of uncertainty’ that will only disperse once Donald Trump has outlined his intentions more fully.

“The Fed chair also got a subtle dig in at one of the President-elect’s most discussed policies, hinting that the proposed infrastructure spend may make little difference to the country’s fairly healthy labour market. Arguably the most important news market-wise is that the central bank now expects three, not the previously stated two, rate hikes in 2017 – likely to combat the incoming Trumpflation – a revision that sent the dollar index to a 14-year high.”

Investors in the UK were also looking ahead to the Bank of England rate announcement at 1200 GMT amid expectations the bank rate will be kept at a historical low of 0.25% and the asset purchases target will be unchanged at £435bn.

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Paul

The author Paul