The Fed with a clear majority decided to keep interest rates unchanged at the end of its latest two-day policy meeting this month. However, the Fed sees a near-perfect economic environment to keep gradually increasing rates.

Market watchers, moreover, believe that the Fed’s latest policy statement indicates that a near-certain rate hike in December. Further, three more rate hikes are likely in 2019. Given this backdrop, mutual funds with significant exposure to the financial sector are expected to be strong investments as the key interest rate is likely to march higher in the near future.

December Rate Hike Possibility Increases

At the end of its two-day policy meeting, the Federal Reserve kept the target range for the federal funds rate unchanged at 2-2.25%. However, it stated that “further gradual increases” would be needed given the current pace of economic growth, strong labor market conditions and the Fed’s inflation target of 2%.

Most investors put chances of the Fed hiking rates by 0.25% in December at 80%. This inference is being drawn from the central bank’s September dot plot. Per this forecast of interest rate projections, most Fed officials predict that the funds rate will be 0.25% higher by the end of 2018. The central bank has already hiked rates thrice this year.

Annual Wage Growth Best Since Recession, Q3 GDP Advances

The Fed did mention that “economic activity has been rising at a strong rate and that the labor market has continued to strengthen,” which could easily offset concerns about soft spots in the economy.

Average hourly earnings rose by 0.2% or 5 cents to $27.30 in October, in line with the consensus estimate. Over the year, it has advanced 3.1% or 83 cents, increasing more than 3% for the first time since mid-2009. The unemployment rate remains flat at the lowest level since December 1969. Further, the economy added 250,000 jobs in October, significantly higher than the consensus estimate of 193,000.