Fed Takes the Plunge 12/16/15

After holding the federal funds rate near zero for seven years, the Fed announced a rate hike of 25 basis points, as widely expected. Investors are now asking what the pace of future rate hikes will be. According to the Fed statement, Fed officials expect that economic conditions will warrant only "gradual" increases in rates. The statement also noted that the Fed does not expect to reduce its holdings of MBS and Treasuries any time soon. Fed officials said that there has been "considerable improvement" in the labor market and that they were "reasonably confident" that inflation would rise to their target level. Investors were pleased that the Fed does not appear to be in any rush to take the next steps to tighten monetary policy, and mortgage rates declined a little after the release of the statement.