Fed Raises Key Interest Rate For 4th Time Since 2015
Fed Raises Key Interest Rate For 4th Time Since 2015
Fed raises interest rates again in further sign of confidence in US economy
29 June, 2017, 07:29
The Federal Reserve signaled confidence in the strong economy Wednesday with its second interest rate hike of 2017, bringing its benchmark rate up a quarter-point to push it over 1% for the first time since the 2008 financial crisis.
However, markets did not respond as expected to the Fed's hawkish stance, with the rand firming and U.S. treasuries weakening even as the Fed remains positive on a higher consumer inflation trajectory, which is not supported by actual data.
In a separate report, the department announced that USA import prices declined 0.3 percent in May after increasing 0.2 percent in April, while the price index for US exports declined 0.7 percent in May following a 0.2-percent advance in April. Many U.S. stocks will be vulnerable to an ongoing tightening in financial conditions especially those with overstretched valuations. Trump's legal team denounced the report. The Nasdaq Composite Index dropped 60.09 points, or 0.97 percent, to 6,134.80.
"I think it was all expected, the USA economy is doing pretty good, we're pretty close to full employment and inflation is pretty close to the target". But traders were divided over the possibility, with some analysts noting the yuan is in better than a few months ago while liquidity in China has already been tightening.
At a press conference on Thursday morning (Australian time), Fed chair Janet Yellensaid the central bank continues to expect that "the ongoing strength of the economy will warrant gradual increases" to the important interest rate.
The move came after two reports posted weaker-than-expected economic data earlier on Wednesday.
The data had knocked the dollar and US bond yields to its lowest level in seven months against a basket of currencies.
Fitch said the impact on bond yields will also be determined by how far the term premium rises from the current historically low level partly caused by the Fed's Quantitative Easing (QE) programme.
The euro traded at $1.1210, after having hit a seven-month high of $1.1296.
In currency markets, the dollar is up to 110.22 yen from Tuesday's 110.04 yen. "They are expecting 2 percent, which may not be realistic".
"This is the most optimistic I've heard her on growth, on the labor market, as well as inflation - willing to look through some of that recent weakness", Santos said in an interview with " Closing Bell".
The New Zealand dollar slipped 0.3 per cent to US$0.7243 after touching a low of US$0.7234, moving away from the previous session's four-month high of US$0.7319.
The Fed also issued updated economic forecasts that showed it foresees one additional rate increase this year to follow Wednesday's increase and an earlier rate hike in March.
Crude oil prices were listless after having slumped almost 4 percent to their lowest close in seven months on Wednesday, on an unexpected large build in gasoline inventories.
The problem with that line of thinking is that other items such as rents, clothes, cars, and airfares are also getting cheaper.
"Traders appear unconvinced by the possibility of another U.S. rate hike this year, despite what the Fed indicated, with the implied probability of one by December standing at below 50%", said Oanda analyst Craig Erlam.
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