After almost ten years, and months of speculation, the US Federal Reserve finally raised interest rates last night, setting the new target range for the federal funds rate at 0.25% to 0.5%, up from 0% to 0.25%.

This was expected by most commentators, with 102 of the 105 analysts surveyed by Bloomberg predicting the rise. What was of more interest was the wording of the accompanying statement, as some feared a hawkish statement from the Federal Open Market Committee (FOMC) about future rate rises would cause jitters in the markets. The FOMC continued with its dovish approach, however, stating that future rate rises would be “gradual”, giving officials time to assess the impact. They also said that monetary policy will remain “accommodative” to support further improvement in the labour markets and a return to the target inflation rate of 2%.

The FOMC also predicted a federal funds rate of 1.375% in December 2016, which suggests a further four rate rises over the next 12 months. This, however, is at odds with what markets are suggesting, as they currently indicate no further rise in rates until June/July next year, and a final rate of around 0.9% come December.

After holding back on a potential rate rise in September, failure to raise rates once again would have been taken as a sign of weakness on the part of the Fed. So markets reacted positively to the rate rise and statement from the FOMC, with the S&P 500 closing up 1.45% at 2,073.07. Yields on US Government bonds rose only slightly, with the 10 year treasury ending the day at 2.30%. The announcement has also been well received in Europe and Asia, with most equity indices in positive territory this morning, again with bond markets muted.

Along with the Fed, we will now have to wait and see what the longer term effects of this rise will be. Although I expect even more attention will be paid by Mr Carney at the Bank of England and the other members of the Monetary Policy Committee!