The US Federal Reserve has finally lifted its official lending rate after 10 years of near zero interest rates but if the Reserve Bank of New Zealand was looking for an early Christmas present, it would have been disappointed.
The Fed yesterday lifted its funds target rate to between 0.25% and 0.5%.
Harbour Asset Management director Christian Hawkesby said there was some initial surprise the Fed had not significantly lowered its future forecasts for the Fed funds rate. Those still sat at 1.4% for the end of 2016 - implying four hikes next year - and 3.5% for its longer run assumption.
If Reserve Bank governor Graeme Wheeler was hoping for a Christmas present from the Fed decision, it had not eventuated, Mr Hawkesby said.
"The governor had been very open about wanting the Fed to finally get on with it in the hope this would weaken the New Zealand dollar.
"As it has turned out, since the Reserve Bank's hawkish cut last week, New Zealand bond yields have risen 0.15% and the dollar is sitting about 5% above the Reserve Bank forecasts,'' Mr Hawkesby said.
That made it harder for the New Zealand central bank to get consumer price inflation back to the 2% midpoint of its target range.
It raised the chances of further OCR cuts in 2016, he said.
United States sharemarkets closed sharply higher for a third session after the Fed raised its key interest rate, Craigs Investment Partners broker Chris Timms said.
All three benchmarks rallied, with the Dow scoring three-digit gains.
The Standard & Poor's 500 utilities sector was the best performer on the index, followed by telecommunications.
The overall 500 index gained nearly 30 points, or 1.45%.
Asian stocks rose, even as oil prices fell.
The Fed funds rate rise ended a lengthy debate about whether the economy was strong enough to withstand higher borrowing costs, Mr Timms said.
The Fed committee judged there had been considerable improvement in labour market conditions this year and it was confident inflation would rise over the medium term to its 2% objective.
"The Fed made clear the rate hike was a tentative beginning to a gradual tightening cycle and, in deciding its next move, it would put a premium on monitoring inflation, which remains mired below target.''
The statement and its promise of a gradual path represented a compromise between those who had been ready to raise rates for months and those who felt the economy was still at risk, Mr Timms said.
The US dollar firmed modestly after the rate rise. Based on interest rate future markets, traders expected a second rise in April.
US November housing starts in November rebounded from a seven-month low and permits surged to a five month high, further signs of strength in the economy, he said.
November marked the eight straight month housing starts remained above a one million unit annual pace, the longest stretch since 2007.
Robust household formation as labour markets strengthened, encouraged young adults to leave their childhood homes, underpinning the housing market recovery.
