Central banks strike a hawkish tone, markets react

Yesterday the US Federal Reserve (Fed) raised interest rates by 0.25 per cent, once again, as expected. Rates are now at 2 per cent, with the head of the Fed indicating that they intend to raise them twice more before the end of the year. The tighter policy and hawkish rhetoric reflects expectations of continuing economic momentum and a US economy that remains in 'good shape'. Contrastingly, the European Central Bank (ECB) today indicated they would hold interest rates at the current levels through the summer of 2019. They did, however, suggest that they would begin to taper off their program of quantitative easing (QE) beginning in September and ending in December. Moreover, they revised their inflation predictions up, whilst lowering their GDP forecast. In reacting to this announcement, the euro fell against its peers by over 1 per cent, while European stocks rallied.