After holding the federal funds rate near zero for seven years, the Fed announced a rate hike of 25 basis points, as widely expected. This was the first rate hike since June 2006. Investors are now asking what the pace of future rate hikes will be. According to the Fed statement, Fed officials expect that economic conditions will warrant only “gradual” increases in rates. The statement also noted that the Fed does not expect to reduce its holdings of MBS and Treasuries any time soon. Investors were pleased that the Fed does not appear to be in any rush to tighten monetary policy, and MBS prices and stocks moved a little higher.
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