Fed delivers a hike and a subtle message

THE Federal Reserve did more today than increase its benchmark interest rates by a quarter-point, only the third hike in more than 10 years - it also took an important step forward in a gradual policy transition.

Hoping for what I have labelled earlier a "beautiful normalisation" of rates, the central bank is moving beyond strict data-dependency and becoming more comfortable about leading markets rather than following them. In the process of becoming more strategic and less tactical, the Fed will, and should, shine more of the spotlight on others with responsibility for economic policy. This includes US policymaking entities charged with fiscal, trade, labour market and regulatory issues, as well as other systemically important central banks, particularly the European Central Bank and the Bank of Japan.

While we need to wait for the release of the Federal Open Market Committee minutes in a few weeks, the rationale for today's rate hike and the policy shift is apparent in the statement issued at the end of the two-day meeting. This was reinforced by the comments at Fed chair Janet Yellen's press conference that followed the rate increase; and it is one that speaks to both domestic and international factors influencing the economic outlook and the balance of risks.