The anticipation surrounding today’s announcement by the Federal Reserve rivaled that of the release of the latest Star Wars movie. After nearly a decade of a declining or unchanged Fed Funds Rate, the Fed hiked that rate by 0.25%. If you are interested in hearing their rationale behind this move, here’s the press release issued earlier this afternoon by the Fed. Stock markets broadly reacted positively to the news as many investors have been hoping for a rate increase for the better part of 2015.
Over the coming days, you will no doubt hear a wide range of reactions to the rate increase. Schwab was standing at the ready with an infographic which they published just minutes after the announcement. In it, you will find a brief history of the Fed Funds Rate and the possible impacts on investments and personal finances. To see the infographic click here.
Historically, increases in the fed funds rate have led to short term volatility. Longer term, however, rate increases (when starting from a very low level as we are in this case) have historically been followed by periods of increasing stock prices. That said, we may be wise to take the advice of the Motley Fool’s Tim Housel: “Maybe we should all ignore the news, focus on what’s in our control, and look forward to Christmas.”