Fed raises key rate and unveils plan to reduce bond holdings

Andrew Cummings
June 15, 2017

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.

Yellen, the first woman to lead the Fed, is serving a term that will end in February.

The Fed would start with monthly reductions in Treasury holdings of no more than $6 billion and $4 billion in mortgage bonds.

His biggest decision will be whether to renominate Chair Janet Yellen to a second term. These rates are well below the Trump administration growth goals of 3 percent a year. The rate sets what banks can charge each other for overnight loans and influences the availability and flow of money in the USA economy.

Momentum SP Reid analysts said the Fed's interest rate increase was largely priced in, "with heightened volatility perhaps only likely in the wake of a statement which departs somewhat from the current narrative".

Minneapolis Fed President Neel Kashkari dissented in Wednesday's decision.

She said: "Our outlook is that we anticipate further increases this year and next year and our statement indicates if the economy continues to evolve in the manner we expect we feel the conditions will be in place to continue the process this year".

Federal Reserve policymakers have been grappling with when and how to alter the policies put in place after the 2008 financial crisis, when they lowered rates and acquired a large portfolio of US Treasuries and mortgage-backed securities.

The Fed's revised forecasts reduced its estimate for unemployment by year's end to 4.3 percent from a March projection of 4.5 percent.

Tokyo stocks closed lower Wednesday reversing early gains as investors awaited the outcome of a United States central bank meeting later in the day. The Fed foresees one additional rate hike this year but gave no hint of when that might occur. US data showed an unexpectedly large weekly build in USA gasoline inventories and International Energy Agency (IEA) data projected a big increase in non-OPEC output in 2018.

This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and global developments. The broader Topix index closed 0.11 percent lower at 1,591.77. But the S&P 500 dropped 0.3%, and the Nasdaq composite lost 0.5%, or 32.5 points. It is roughly flat against the pound, at $1.2758.

In currency markets, the dollar is up to 110.22 yen from Tuesday's 110.04 yen.

Federal Reserve policymakers have raised their target for the benchmark federal funds interest rate by a quarter-point, to a range of 1 percent to 1.25 percent.

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