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Federal Reserve Raises Interest Rate Slightly

19 Juin 2017

"But shrinking balance sheet would boost the dollar in the long run", the trader said, noting the Fed's plan to reduce its portfolio would "inevitably" pile pressure on the Chinese yuan. The plan would involve halting reinvestments of the growing amounts of maturing securities.

We expect another rate hike and some balance sheet normalisation before the end of the year'. From there, the "cap" will increase by $6 billion every three months over the course of a year until it hits $30 billion a month.

For agency debt (MINT) and mortgage-backed securities (MBB), this cap would be $4 billion per month, rising by $4 billion every quarter until a cap of $20 billion per month is reached.

Although the dollar rallied after the statement release and Yellen's speech, the dollar index is still trading near a seven-month low.

Stocks rose on Wednesday, but worries about stretched valuations and caution before a near-certain rate hike by the U.S. Federal Reserve kept their gains in check, while the dollar steadied against a basket of major currencies.

CURRENCIES: The pound rose nearly a cent, from $1.2695 to $1.2781, after the Bank of England's statement - currencies tend to rise when rates increase. A local expert says the USA rate hike could actually help Korea resolve its massive household debt problem, which topped a staggering 1.2-trillion US dollars in the first quarter.

They lowered projections for 2017 to 1.6% from their March estimate of 1.9%.

"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. 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.

USA jobless claims were slightly lower than expected at 237,000 in the latest week from 245,000 previously while there was a sharp increase in the New York Empire index to 19.8 for June from -1.0 in May. Earlier on Wednesday, the Labor Department reported consumer prices unexpectedly fell in May, the second drop in three months. Fed officials have been trying to get inflation to rise to a low but manageable rate of about two percent.

One member of the Fed dissented: Neel Kashkari, who wanted to keep the federal funds rate unchanged.

Federal Reserve head Janet Yellen justified the decision by highlighting the resilience of the United States economy, which has been buoyed by a robust labour market.

Federal Reserve Chair Janet Yellen speaks in Washington, Wednesday, June 14, 2017, to announce the Federal Open Market Committee decision on interest rates following a two-day meeting.

The BSE Sensex rose almost 1 per cent on Wednesday to mark its second straight day of gains on continued foreign inflows, while stocks perceived.

Federal Reserve Raises Interest Rate Slightly