Fed hikes rates, markets fall, but stocks could yet rally

The Federal Reserve raised interest rates for the first time this year on Wednesday.

The Fed increased the fed funds rate by 25 basis points to a range of 0.5 percent to 0.75 percent after its monetary policy meeting, citing “realized and expected labor market conditions and inflation”.

Fed officials projected three quarter-point rate increases in 2018 based on median federal funds forecasts of 1.375 percent in 2017 and 2.125 percent the following year.

Markets fell, with the MSCI All-Country World Index declining 0.6 percent. The S&P 500 fell 0.8 percent while the STOXX Europe 600 fell 0.5 percent.

The US two-year Treasury note yield rose more than eight basis points to 1.238 percent while the US dollar rose 1.3 percent against the yen.

Oil fell, Brent crude and US crude settling 3.27 percent and 3.66 percent lower respectively.

The Fed's decision was “largely as expected”, Ed Keon, portfolio manager and managing director at QMA, said, but “the market is taking it as a bit more aggressive or hawkish than it had thought”.

Earlier on Wednesday, though, Jim Paulsen, the chief investment strategist at Wells Capital Management, said that stocks may rally longer than even the most bullish predictions despite a Fed rate hike as the latter would be taken as an acknowledgement of the economy's improvement.