Stocks, $A rally after US Fed pulls the rate trigger

Stocks leapt and the Australian dollar regained ground after the US Federal Reserve raised its benchmark rate for the first time since 2018 to combat inflation, but disappointed traders who had bet on an even more aggressive central bank.The Fed increased the Fed funds rate target by a quarter of a percentage point to the new range of 0.25 per cent to 0.50 per cent at the end of its two-day policy meeting.

Central banks increase interest rates to slow demand and combat inflation which is presently running at a 40-year high in the world's largest economy. However, the risk of tighter monetary policy is higher unemployment and slower economic activity.The US dollar dropped 0.5 per cent to 98.98 against a basket of currencies as the outcome had been largely priced in, and the Fed failed to surprise rate hawks with a steeper interest rate outlook.

It is the equivalent of a quarter of a percentage point rate increase at each of the Fed’s six remaining policy meetings this year, and the benchmark rate is expected to climb to 2.8 per cent next year.

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