Euro zone bond yields jump as Fed and BoE defy weak data

Andrew Cummings
June 28, 2017

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.

According to's fed rate monitor tool, almost 90% of traders expect the Fed to raise rates from 0.75-1% to 1-1.25%. U.S. Federal Reserve on Wednesday raised the benchmark interest rates for the fourth time since December 2015, and unveiled plans to start trimming its balance sheet.

It is one of those ironies that the month before the Fed finally introduced its further rate rise, inflation actually fell.

The Federal Open Market Committee also maintained its forecast for one more rate hike this year.

Growth in household spending picked up in recent months.

In view of the stable economic conditions, the Fed plans to reduce its 4.5-trillion-U.S.dollar balance sheet later this year and unveiled detailed plan to trim its bond holdings. That's the level the Fed believes is a neutral rate - neither stimulating growth nor restraining it.

The yellow metal tends to fare better when interest rates are low and often struggles when interest rates increase. Unemployment dipped to 4.3 percent in May, a 16-year low.

"I think we're still in a position where the Fed will continue to be relatively accommodating", Mick Mulvaney, director of the Office of Management and Budget, told reporters Thursday at a briefing on government reorganization efforts.

"The good. More important, we see the global markets finally beginning a six- to eight-year turn", said Christine Armstrong, executive director at Morgan Stanley in Boston. Annual inflation is running at 1.7 percent.

The Fed said it expects USA inflation to be at 1.7 per cent by the end of this year, down from the 1.9 per cent previously forecast. Only Neel Kashkari, president of the Minneapolis Fed bank, opposed the increase.

Yellen would not comment on her future beyond her intention to serve out her term as chairwoman, which ends next February. The rate sets what banks can charge each other for overnight loans and influences the availability and flow of money in the US economy. 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. Investors put the odds of a 0.25 percentage point increase by the Fed this month at about 94 percent, according to the CME Group futures exchange. Labor market growth has slowed somewhat since previous year, including a lackluster 138,000 net new jobs added in May.

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