Fed Hikes Interest Rates, Leaves Investors Edgy About Future Policy Tightening

The US Federal Reserve (Fed) has raised interest rates for the first time since 2023, in line with expectations to combat persistently high inflation. The hike, which lifted the Fed's benchmark rate to 3.75-4.00 per cent, was a widely anticipated move after President Donald Trump repeatedly called for rate cuts.

The decision, however, has left investors uncertain about how tight monetary policy will become, with some warning that higher rates could slow down the economy and negatively impact stocks and bonds.

Martina Miskin, co-chief investment strategist at Manulife John Hancock Investments, said that while the Fed's move 'adds trust to the market', it may have come off as too hawkish. He warned that investors will need to see how the economy reacts in the next couple of months.

The unanimous hike vote among Fed officials has increased the probability of another rate increase before year-end, with some investors positioning for an easing cycle early this year now needing to recalibrate their portfolios.