The Fed's interest rate hike is implemented. Legal analysis of the impact on stocks and bonds and the outlook for Taiwan stocks

The US Federal Reserve is really raising interest rates! Here comes the legal person’s latest opinion. (File photo)

[Reporter Zhuo Yijun/Taipei Report] In order to combat inflation, the U.S. Federal Reserve (FED) raised interest rates for the first time in nearly three years, despite the opposition of U.S. President Trump. It also hinted that it may raise interest rates again before the end of the year. Yuanta Investment Consulting said that this interest rate increase may not be a bad thing for the stock and bond markets. For the stock market, the U.S. Federal Reserve is not prepared to sacrifice the economy and employment in exchange for lower inflation, reducing the risk of a hard landing. For bonds, higher policy interest rates still need to be digested in the short-term, but in the long-term they may benefit from the improvement in the credibility of anti-inflation. The Cathay Securities Futures Research Department believes that the profits of Taiwan's 50 constituent stocks will grow by about 50% and 30% in 2026 and 2027 respectively. Strong fundamentals will help resist the pressure of FED to raise interest rates, maintaining the view that Taiwan stocks are "short and long" and that the weighted index in the second half of the year is expected to challenge 50,000 points.

Yuanta Investment Consulting analyzed that for the stock market, as long as this structure of "short-term rise, long-term stability or even decline" continues, this interest rate hike will help reduce policy uncertainty and make the stock market more focused on fundamentals. In addition, the threshold for the next interest rate hike has been significantly lowered, but it does not mean that it will reopen. In a cycle of interest rate hikes, the really important change at this meeting is that the FOMC's consensus on further interest rate hikes has significantly improved. In July, only three officials advocated raising interest rates. However, in September, not only did they unanimously raise interest rates 12 to 0, but 16 of the 18 officials who submitted dot plots believed that at least one more interest rate hike was needed this year.

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Therefore, judging from the dot plot and Federal Reserve Chairman Warsh's description of this rate hike as "just removing part of the accommodation," the Fed's current policy focus has shifted from "whether a rate increase is needed" to "whether the current level of restrictions is sufficient." This means that the threshold for the next rate hike has been significantly lowered.

However, this does not mean that the FED has re-entered a traditional cycle of raising interest rates. Even looking at the more hawkish dot plot, the high point of next year's policy interest rate is only about two yards higher than the current level, indicating that the FOMC is currently more like a limited policy recalibration rather than preparing for sustained and substantial tightening.

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