For quite some time, we've been watching the Federal Reserve incredibly closely. That's because in 2014, the Fed said that it planned on increasing its interest rate by the end of 2015. Well, they have reached their goal. As of earlier this week, the rate has officially been lifted, and markets are reacting! Today, we'll talk about the long road the Fed took to higher interest rates, how the market is reacting, what we can expect to see moving forward and how binary options traders can take advantage of the trends.
The Long Road To A Rate Hike
As mentioned above, the Federal Reserve has been saying since late 2014 that it planned on increasing its interest rate by the end of 2015. When this was announced originally, it was expected that the Fed was going to move on interest rates in June. However, when June rolled around, economic conditions proved to be a cause for concern. Consumer spending wasn't what it needed to be and global economic conditions started to take a turn for the worst. So, there was no rate hike in June. As a result of the delay in the rate hike, expectations moved from June to September.
Soon, September's FOMC meeting had come and gone. Yet again, there was no interest rate hike as the result of poor economic conditions both in the United States and globally. At this meeting, US jobs proved to be the major cause of concern. In the United States, we should see an addition of 200,000 jobs per month or more under positive economic conditions. However, in August, that number came in at only 173,000, leading to yet another rate hike delay. When the rate hike was delayed in September, experts expected to see a hike in December.
The Federal Reserve held its FOMC meeting earlier this week for the month of December, ultimately making the decision that it's time to increase the rate. Now, the interest rate has been increased from 0.25% to 0.50%. This is now expected to be the first increase in plan that outlines gradual hikes.
How The Market Is Reacting To The News
As I expected to see following a rate hike, US markets and commodities are falling dramatically. The Dow Jones Industrial has been declining for two sessions, oil has fallen below $35 per barrel and other commodities are struggling. Ultimately, with higher interest rates, consumers spend more on interest, leading to less by way of corporate gains. Also, the USD generally climbs in value, leading to declines in commodity prices.
What We Can Expect To See Moving Forward
Moving forward, I'm expecting to see more bearish activity in the market. The reality is that this isn't the only rate hike we've ever seen. In fact, we've seen several instances of rate hikes from the Federal Reserve, each leading to about the same reaction. Generally, we see declines in the market that last for months. There's no reason to expect that in this case, things would be any different.
How Binary Options Traders Can Take Advantage Of The Trends
The fact that the Federal Reserve has increased its interest rate leads to several opportunities for binary options traders. Considering that markets historically decline for months following rate hikes, we can expect the same in this case. So, when trading the Dow Jones Industrial Average, S&P 500, NASDAQ, as well as commodities, binary options traders should be watching for strong put option opportunities. However, it's also important to remember that under higher interest rates, the USD heads upward. So, binary options traders should be watching for call option opportunities that allow them to take advantage of the uptrend on the USD. Keep informed and check out the binary options financial news.
What Do You Think?
Where do you think markets are headed as the result of the rate hike? Let us know your opinion in the comments below!
[Image Courtesy of Wikipedia]