Julian Bray Aviation Commentator writes: For the first time in some seven years, the Federal Reserve System in the USA has raised interest rates by 0.25% but has signalled any future rate rise would be on a slow gradual basis.
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| "Do take a handful, they'll be real expensive for you Brits tomorrow..." hattip to CNN http://edition.cnn.com/2015/12/15/aviation/vintage-airplane-photos-golden-jet-age/ |
The 0.25% hike in rates does have a marked bearing on aviation as most transactions are routinely conducted in US dollars. The move was widely anticipated and financial hedging in place. The move will however adversely impact the Euro, but should only exert marginal pressure on Sterling.
This action by the FED might now 'liberate' many corporate war chests as major US corporations have built up huge cash reserves as the low interest rates means there was effectively no other place for the money to be invested. Banks being very out of favour and on a trust basis marginally above journalists and estate agents! Prime UK stocks could well be targets for US corporations, eager to kick start the acquisitions business...
Some commentators are worried this is a return to the 1930's which resulted in a rise then a major crash, hence the FED's assertion that any rises would be gradual.
In addition to documents traditionally released with the post-meeting statement, the Fed also put out a statement outlining the mechanics of how the new rate will come to pass. The programme will be an ambitious one, involving $2 trillion of securities used in overnight trading to push the rate into the desired range. However, the FOMC statement said it will be some time before the Fed starts unwinding its mammoth $4.5 trillion balance sheet.
The move shows that the Fed is confident that the U.S. economy has improved a great deal since the financial crisis. But in its statement announcing the rate hike, the Fed's Open Market Committee said expects "only gradual increases" in rates going forward, indicating wariness over the strength of the recovery. In particular, the Fed will be watching to ensure that the rate hikes do not significantly crimp strong consumer demand, or cool a housing market that has also propped up recent growth.
The American stock markets reacted positively as clearly the hot money, which has flowed into the UK and sent London property rocketing, (as an investment and usually deliberately kept in pristine empty condition) will now flow back into the USA. Who knows Londoners may actually finally be able to rent somewhere!
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