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Fed Raises Interest Rate by a quarter point

19 Juin 2017

U.S. stocks edged lower and prices of U.S. Treasuries pared gains after the Fed's policy statement.

The Fed's determination to stick to its strategy of policy normalisation triggered a reversal in the dollar and also led to a small recovery in U.S. bond yields. The yield on the 10-year Treasury note was 2.12 percent, the same as shortly before the statement came out. Mortgage rates will be higher, as will credit card interest rates and vehicle loans. It was down a point to 2,439. The Dow Jones industrial average rose 0.2 per cent, to a record 21,374.56.

However a low unemployment rate upheld the bank's decision, with Federal Reserve Chair Janet Yellen saying: "Our decision ... reflects the progress the economy has made and is expected to make".

USA rates are now at their highest level in nine years.

The US jobless rate fell to a 16-year low last month.

Those factors mean the Fed's preferred inflation measure will remain below the two percent target for some time, but will gradually rise to the target level over "the medium term".

They forecast United States economic growth of 2.2 percent in 2017, an increase from the previous projection in March.

Chris Low of FTN FINANCIAL said the Fed "compromised" by continuing the rate increases despite falling inflation, but "the market expects the Fed to take a break". These rates are well below the Trump administration growth goals of 3 percent a year. The major indices in the Indian markets are trading fairly higher and it seems rate hike by Fed has not had much of an impact on the Indian bourses.

USA stocks mostly fell while the dollar cut its losses on Wednesday after the Federal Reserve delivered a widely expected U.S. interest rate hike.

Fed policymakers also gave some details for how they intend to shrink their $4.5-trillion balance sheet beginning this year. It is a strong sign that the USA central bank believes the economy in the country is solid. Minneapolis Fed President Neel Kashkari dissented in Wednesday's decision.

We expect another rate hike and some balance sheet normalisation before the end of the year'. Investors had their first opportunity to react to yesterday's announcement from the Federal Reserve.

Fed officials are wrapping up their two-day June meeting.

"There is a lot to digest, and even some apparently conflicting signals, such as the fact that the Fed revised its own inflation outlook slightly down and yet kept its intention to raise rates again this year", said Mitsuo Imaizumi, Tokyo-based chief foreign exchange strategist for Daiwa Securities. Thursday's fix was 87 pips, or 0.13 percent firmer than the previous fix of 6.7939. However, with the increased risk of political turmoil, it's highly unlikely that the BoE will hike rates anytime soon unless inflation went out of control.

Financial markets have been anticipating the increase.

KEEPING SCORE: Japan's Nikkei 225 stock index fell 0.4 percent to 19,797.46 and South Korea's Kospi sank 0.6 percent to 2,358.34.

The gold price in the global market saw huge fluctuations after the Fed rate hikes. The Nasdaq Composite Index dropped 60.09 points, or 0.97 percent, to 6,134.80. They fell as low as 2.103 percent following the downbeat data, their lowest since November 10.

"The rise of dollar leads to a drop in oil prices". It is roughly flat against the pound, at $1.2758.

The Federal Reserve is widely expected to raise rates in Wednesday's FOMC meeting as futures markets have priced in a 0.25% increase which would see the Dollars carry a 1.25% interest rate.

Fed Raises Interest Rate by a quarter point