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Fed raises key rate and unveils plan to reduce bond holdings

15 Juin 2017

The Federal Reserve is charged with maintaining "maximum employment, stable prices, and moderate long-term interest rates".

The Shanghai Composite Index lost 0.6 percent to 3,135.32 and Tokyo's Nikkei 225 shed 0.1 percent to 19,917.51. That weighed heavily on US energy sector shares, which contributed to the S&P 500's decline. Hong Kong's Hang Seng Index advanced 0.1 percent and Seoul's Kospi retreated 0.1 percent to 2,372.64. Benchmarks in New Zealand and Thailand rose while Singapore and Manila retreated. Some gains are expected on Wall Street later, with the futures for both the Dow and S&P 500 up 0.1 percent. Taipei fell 0.6 percent.

Fed officials said they would increase their benchmark federal-funds rate on Thursday by a quarter percentage point to a range between 1% and 1.25% and penciled in one more increase later this year if the economy performs in line with their forecast. In short, the data fully supported a pause in the Fed's interest rate increases.

Neil Wilson, senior market analyst at ETX Capital, said: "The Fed stuck to its guns, raising rates by a quarter point and calling for another hike this year, in spite of some pretty awful inflation earlier that has the market doubting the central bank's willingness and ability to tighten again in the near-term". However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data. 10-year yields were last at 2.127 percent after touching 2.103 percent earlier, their lowest since November 10. U.S.

Tokyo ended 0.1 percent lower, while Shanghai closed down 0.7 percent with dealers unimpressed by Chinese factory output data.

The median estimate of the long-run neutral rate, which is seen as the level of monetary policy that neither boosts nor slows the economy, was unchanged at 3.0 per cent. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and worldwide developments. Draft regulations published by the European Union executive Commission would force any clearinghouse considered important to the European Union financial system to accept direct oversight from the bloc and, if requested, relocate to inside the EU. Timing, personal finances, and the housing market may be more important in any given purchase decision.

TECH BOUNCE: U.S. tech stocks bounced back but still are below last week's record-high prices. With inflation having risen to 2.7%, (0.7% above the target), it would appear as though Britannia's dove is in need of a metamorphic transformation to curb inflation. The risk for the Fed, say analysts, is that if inflation expectations become unanchored and fall further from here, it would make it harder for policy makers fulfill their inflation mandate. It is usually interpreted by investors as a warning sign that the growth momentum may be slowing down, leading to diminished inflation pressure.

The oil price is under pressure today, after a report from the International Energy Agency looking at 2018 saying the rise in output from shale producers in the United States was likely to continue - piling pressure on OPEC's attempts to balance the market.

USA crude fell 3.7 percent to settle at $44.73 per barrel and Brent was last at $46.99, down 3.5 percent.

Crude oil prices fell sharply following an unexpectedly large buildup in gasoline stocks. On Tuesday, market participants were expecting the next rate hike by December. Whirlpool (WHR) gained 1.4%.

Fed raises key rate and unveils plan to reduce bond holdings