US Federal Reserve decision will raise your mortgage rate in 2017

If you've got a mortgage, your rates will be heading up in 2017.

If you hadn't already got that message then today's move by the US Federal Reserve should serve as a clear marker.

The US Federal Reserve has raised its official interest rate by 25 basis points to a range of 0.5 to 0.75 per cent - its first rate hike for 2016 - and signalled a faster-than-expected pace of increases next year.

US Treasury yields have soared indicating the world will be paying more to borrow next year.

That includes New Zealand banks which source a large chunk of their funding on international markets.

So even if the New Zealand Reserve bank holds as expected, local mortgage rates will rise.

Today's rate increase was largely expected by the financial markets but tone of the statement was stronger than many had expected - indicating three more hikes next year where the market had expected just two.

The New Zealand dollar fell sharply after the US Federal Reserve raised its official interest rate and mapped out a more stringent-than-expected tightening of monetary conditions next year.

By 10.30 am the Kiwi was trading at US71.20c, down from US72.20c just before the 8 am announcement.

The Kiwi's decline was based on a strengthening of the US dollar in response to the news from the Fed.

"The US dollar has strengthened and the big surprise for the markets was the Fed's prediction that there would be three more hikes next year from the previously expected two hikes, which is being viewed as more hawkish than the markets had anticipated," ANZ Bank senior economist Phil Borkin said.

The New Zealand stock market also fell following Wall Street's lead.

Rate rises mean more investors are expected to move their money out of shares and into bonds and bank deposits.

In its statement, the Fed said: "In view of realised and expected labour market conditions and inflation, the committee decided to raise the target range.

"Job gains have been solid in recent months and the unemployment rate has declined," the Fed said, noting that market-based measures of inflation compensation had moved up 'considerably'."

The Fed's median outlook for rates rose to three quarter-point increases in 2017 from two as of September. That would be followed by another three increases in both 2018 and 2019 before the rate levels off at a long-run "normal" rate of 3.0 percent.

The move by the US central bank will give borrowers around the world a clearer idea about the future direction interest rates.

The New Zealand Reserve Bank last month cut its official cash rate to 1.75 per cent, in what has largely been seen as its last cut in the cycle.

By Liam Danna and Jamie Gray