US Federal Reserve Raises Interest Rates, Unveils Balance Sheet Cuts for 2017

Andrew Cummings
June 21, 2017

It was down a point to 2,439.

The U.S. central bank is scheduled to release its decision at 1800 GMT on Wednesday with a news conference to follow from Chair Janet Yellen.

In currency markets, the dollar was up 0.2 percent against a basket of major peers, having earlier traded in negative territory as investors wondered whether the Fed would be able to raise rates again this year.

U.S. stocks edged lower and prices of U.S. Treasuries pared gains after the Fed's policy statement. That gauge is called core Personal Consumption Expenditures, and it was up just 1.5 percent in the 12 months ending in April.

They forecast USA economic growth of 2.2% in Y 2017, an increase from the previous projection in March. But the Fed maintained its forecast for three rate hikes next year.

The average 30-year fixed mortgage had a rate of 4.02% on Weds., June 14 - the lowest since November 16, 2016 - and an average of 0.24 discount and origination points.

The Fed wants inflation to rise higher than that - to about 2 percent - because rising prices encourage us to spend now rather than wait.

".because we also expect the neutral level of the federal funds rate to rise somewhat over time, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion".

'I still expect this to be the last hike for 2017, given emerging headwinds for the United States economy, in particular for consumption, as well as the worryingly weak inflation and wage growth paths'.

There was also a solid reading for the Philadelphia Fed index, although industrial production was unchanged for May. Fed officials project growth of roughly 2 percent in 2017.

Normally, the Fed raises interest rates to combat inflation. The new rate of one to one and a quarter percent is on par with the level of South Korea's. Despite this, the finance ministry said it will strengthen its monitoring of the nation's financial markets and come up with countermeasures. USA stock markets were relatively flat through afternoon trading, while the yields on 10-year Treasury notes had fallen to 2.11 percent.

The central bank forecast another rate increase later this year, alongside efforts to reduce its trillion-dollar holdings of US government debt.

Asian markets fell overnight and European indices following suit, with the Cac 40 in France down almost 1% and Germany's Dax off 0.5%. In Asia, Japan's Nikkei 225 ended the day marginally lower.

Worries about the pace of global growth and weakness in markets for the commodities they produce drove a 5-percent slide in the values of both Australia's and Canada's dollars between March and May. It is roughly flat against the pound, at $1.2758.

The U.S. Federal Reserve has raised the target range for the federal funds rate to 1 percent to 1.25 percent from 0.91 percent, citing labor market conditions and inflation.

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