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U.S. Federal Reserve hikes rates: Will the RBA follow suit next week?

As was widely expected by the share market, the U.S. Federal Reserve raised interest rates overnight by a quarter point to between the 2% to 2.25% target range.

The FOMC statement advised that: “Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low.”

This, combined with growing household spending and business investment, has led to overall inflation remaining near 2% on a 12-month basis according to the Fed. It believes that indicators of longer-term inflation expectations are little changed.

Looking ahead, the Fed expects that “further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term.”

The end of accommodative monetary policy.

The removal of the word ‘accommodative’ in relation to its monetary policy has caught the eye of investors.

According to Reuters, Fed chairman Jerome Powell has said the removal of the wording, which has previously been a staple of the central bank’s guidance for the last decade, did not signal a policy outlook change.

“Instead, it is a sign that policy is proceeding in line with our expectations,” stated Mr Powell.

The Australian dollar remained flat at 72.6 U.S. cents on the news.

Will the RBA raise rates next week?

Next Tuesday the Reserve Bank of Australia will meet to discuss the cash rate. Unfortunately for savers, it doesn’t look likely that our central bank will be following the lead of its U.S. counterpart.

According to ASX 30 Day Interbank Cash Rate Futures, there is a 0% probability that rates will increase to 1.75% next week.

Because of this, I would suggest savers skip savings accounts and check out some of the top dividend shares the share market has to offer.

Shares such as Dicker Data Ltd (ASX: DDR), National Storage REIT (ASX: NSR), and WAM Capital Limited (ASX: WAM) could be great options for income investors.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited. The Motley Fool Australia has recommended National Storage REIT. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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