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16Dec2015 Market Close: Fed Raises Rate 0.25%, DOW Closes Up 224 Points, Crude Oil Slips Three Percents

Written by Gary

Markets closed higher after the historic decision the Federal Reserve said it will raise short-term interest rates by a 0.25 percentage point from a near-zero range for the first time in nearly a decade. The fireworks following the decision was heavy, but finally settled out where they started before the reading. Crude fell from its 37 level to the mid 36's, the DOW closed up 224 points and the SP500 closed up 1.46%.

Todays S&P 500 Chart

The Market in Perspective

Here are the headlines moving the markets.

Fed raises interest rates, citing ongoing U.S. recovery

WASHINGTON (Reuters) - The Federal Reserve hiked interest rates for the first time in nearly a decade on Wednesday, signaling faith that the U.S. economy had largely overcome the wounds of the 2007-2009 financial crisis.

Equities higher after Fed rate decision; trading volatile

NEW YORK (Reuters) - Global equity markets rallied in volatile trade while the dollar and U.S. Treasury yields rose on Wednesday after the U.S. Federal Reserve announced it would raise interest rates for the first time in nearly a decade.

Oil drops 3 pct as U.S. supplies swell, Fed hikes rates

NEW YORK (Reuters) - Oil fell more than 3 percent on Wednesday, snapping a two-day rebound after U.S. government data showed a surprise weekly build in crude inventories and the Federal Reserve raised interest rates for the first time in nine years.

Wall Street higher 30 minutes ahead of Fed decision

(Reuters) - U.S. stocks trimmed gains but remained in positive territory in afternoon trading on Wednesday, half an hour ahead of a widely anticipated interest rate hike by the Federal Reserve.

U.S. housing data signals economic strength; manufacturing weak

WASHINGTON (Reuters) - U.S. housing starts in November rebounded from a seven-month low and permits surged to a five-month high, signs of strength in the housing market as the Federal Reserve starts hiking interest rates after years of easy monetary policy.

What the Fed rate hike means to you, and your wallet

LOS ANGELES (Reuters) - For everyone who has been saying interest rates can only go up, well - now is their time. But what does the Federal Reserve's decision to raise interest rates actually mean for your wallet?

Valeant says can contain hit to dermatology, projects 2016 growth

(Reuters) - Drugmaker Valeant Pharmaceuticals International Inc on Wednesday said that fourth-quarter profit was hit when it cut ties with pharmacy Philidor Rx Services, but that it could contain the damage next year and grow profit.

Black presence on U.S. boards shrinks, hedge funds cited by some

BOSTON (Reuters) - African-Americans have become a shrinking presence in the boardrooms of the biggest U.S. companies in recent years, setting back a push by pension funds for greater diversity.

Billionaire Sam Zell Warns The Fed Is Too Late, "Recession Likely In Next 12 Months"

When last we checked in with billionaire Sam Zell, the real estate mogul was busy offloading some $5.4 billion in apartments from Equity Residential's portfolio. The 23,000 units were sold to Barry Sternlicht's Starwood Capital and as we noted at the time, Zell has traditionally had a very keen nose about such things as "market peaks": the 74 years old is credited with calling the top of the real-estate market in 2007, when he sold another one of his companies, Equity Office Properties Trust, to Blackstone for $23 billion.

Despite his penchant for getting it right, Zell warned last September that when it comes to calling market peaks, œyou've got to tiptoe [because] if you're wrong on when, that's a problem.

Well on Wednesday, Zell œtiptoed into an interview on Bloomberg TV and made a rather decisive prediction about where the economy is headed now that the Fed has waited too long to hike.

œI think this interest rate hike is too late, Zell said, before suggesting that œthis economy is closer to falling over than it is to going up.

Zell's conclusion: œI think there's a high probability that we're looking at a recession in the next twelve months.

Note that this is entirely consistent with the notion that if, as a result of the Fed missing its window, NAIRU undershoots, if (or, more appropriately "when") it snaps back, a recession is a virtual certainty if history is any guide. Recall what BNP said last month: "NY Fed Fed President William Dudley recently pointed out that whenever the US unemployment rate has increased by more than 0.3-0.4pp from its low, there has always been a recession. Knowing this, it is perhaps not surprising that the median Fed forecast always shows the unemployment rate levelling off close ...

The Sellside Reacts To The First Rate Hike In Years: "It's Calm On The Floor"

While Yellen still speaks in her historic "first rate hike in years" press conference, the sellside has already shared its kneejerk reaction to the Fed's announcement, and as Citi notes, "It's calm on the floor considering the first rate hike in years. More attention on WTI crude, which remains 4% lower to 35.80 after DOE inventory build."

More from Citi:

Our Treasury desk notes real money flow in front end with better buying around the 2-year point as its yield briefly popped above 1%. Little seen in the back end.

Credit spreads remain tighter by 1-3bp although there are spots of weakness, like some energy names where spreads are +25bp. œMaybe a touch better now, but tone was firm pre-Fed so can't really attribute this to Fed, our tech trader says.

Selling was seen in the credit ETFs right after the Fed, took prices off the highs. Lots of action in the options space, trader there says market is moving fast.

HY25 is up around 1/2 point, the highs of the day now, nearing 101 as IG moves 1.5bp tighter. HY25 is well bid.

And here is Goldman:

BOTTOM LINE: The FOMC raised the funds rate to 0.25-0.50%, as widely expected. The post-meeting statement signaled a baseline of further funds rate increases, but expressed caution about inflation developments. The Summary of Economic Projections (SEP) showed an unchanged median funds rate for end-2016; median projections for 2017-18 declined moderately.

MAIN POINTS:

1. The FOMC raised its target rate for the federal funds rate at today's meeting to a range of 0.25-0.50%, ending a seven-year period at 0-0.25%. The supplem ...

Fed Reveals Rate Hike "Plumbing" Details: Removes Cap On Reverse Repos, Limits Each Counterparty To $30 Billion

Perhaps even more important than the actual rate hike announcement, the one statement the market was particularly focused on was the Fed's "implementation note", which lays out the Fed's thought process on how it will actually raise rates in order to maintain the Fed Funds in the 0.25%-0.50% range. What it reveals is that in addition to removing the daily limit on aggregate borrowings through its overnight reverse repurchase facility, previously set at $300 billion (recall that according to Citi, the Fed may need to drain up to $1 trillion in excess liquidity to effect the 25 bps hike), it will have a per counterparty limit of $30 billion per day, which may or may not be enough.

Separately, the Simon Potter's desk at the NY Fed announced "that the Desk anticipates that around $2 trillion of Treasury securities will be available for ON RRP operations to fulfill the FOMC's domestic policy directive."

What is missing from the analysis is how the Fed will approach the fact that securities pledged to the Fed remain outside of the traditional repo pathway, and thus the liquidity shortage among the treasury market is likely to continue if not worsen.

Most of these are in line with expectations. Now it remains to be seen if these theoretically necessary measures will also be practically sufficient.

The full details from the FED:

Decisions Regarding Monetary Policy Implementation

The Federal Reserve has made the following decisions to implement the monetary policy stance announced by the Federal Open Market Committee in its statement on December 16, 2015:

The Board of Governors of the Federal Reserve System voted unanimously to raise the interes ...

Stocks Climb as Fed Unanimously Votes to Boost Rates

U.S. stocks rose Wednesday after the Federal Reserve said it would raise short-term interest rates for the first time in nine years.

Fed Raises Rates After Seven Years Near Zero

The Federal Reserve said it would raise its benchmark interest rate from near zero for the first time since December 2008 "to a range between 0.25% to 0.50% "and emphasized it will likely lift it gradually thereafter in a test of the economy's capacity to stand on its own with less support from super easy monetary policy.

Big Banks' Waiting Game on Interest Rates Now Over

The Federal Reserve's decision to lift short-term interest rates marks the end of an era that severely pinched banks' lending profits and forced them to change the way they do business.

16 December 2015 FOMC Meeting Statement: the Committee Decided To Raise the Federal Funds Target range to 1/4 to 1/2 Percent.

Econintersect: The Federal Open Market Committee (FOMC) - the board of directors of the Federal Reserve finally bit the bullet and raised the Federal Funds Rate stating ....

.... The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective. Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent.

The economic projections of the FOMC members also follows.

The Margin: 10 stories that broke the Internet in 2015

If the Internet can survive heated dress debates and the soul-crushing end of a pop culture era, it can survive just about anything. But 2015 surely put it to the test.

Currencies: Dollar posts muted gains vs. euro, yen after Fed rate hike

The dollar weakened against its main rivals Wednesday after the Federal Reserve raised its benchmark interest rate target off the zero-bound and suggested that the pace of future rate hikes would be gradual.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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