Federal Reserve Moves Interest Rates Higher

Ivan Schwartz
June 17, 2017

The US Federal Reserve (Fed) chose to raise rates by 25 basis points yesterday (14 June), the second move this year and the fourth in this cycle.

Nobel Prize-winning economist Robert Shiller isn't getting spooked by rising interest rates or fresh stock market records, at least not yet.

The Federal Reserve, for its part, seems to believe that the economy is strong enough for money to be more expensive, including real estate financing. Fed Chair Janet Yellen said the decision reflected the labor market's improvement and, to a lesser degree, inflation. It would start implementing those policies this year, assuming economic growth continues. All told, combined with a similar move at the end of a year ago, the central bank has now ratcheted the primary short-term interest rate benchmark in the United States up by 75 basis points in the past seven months.

The larger jumbo 30-year fixed nosed up to 4%, and the average 15-year fixed mortgage rate settled at 3.25%. Overall, interest rates remain very low in comparison to previously.

The U.S. central bank had purchased the assets to help the economy ride out the downturn that followed the 2007 financial crisis. The CME FedWatch Tool indicates a market estimate of a rate hike in March.

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The State Bank of Viet Nam this morning listed the daily reference rate at VND22,405 to a dollar, three dong lower than Wednesday's rate. The fall in energy resources, leads to a drop in the economy of those countries, incomes of which depend on energy revenues. US yields dropped across the curve on Wednesday and the spread between two and ten-year yields shrank to the lowest levels in over a year. The economy has now added new jobs for 80 straight months. The current unemployment rate and personal consumption expenditure suggest that the Fed target rate should be at 4.01 percent at the moment.

"The U.S.is 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.

Overall, growth has been slow and steady in the US since 2009, making it one of the country's longest growth periods in history.

"Because the Korean market rate has been rising, the possibility of a rapid capital outflow due to Fed's rate increase, is deemed low; Korean policy rates were lower than U.S. between August 2005 and September 2007, but Korea survived".

Even though eurozone growth has been improving, the European Central Bank appeared reluctant to reduce monetary support for the economy, which includes pumping billions of euros into bloc each month.

Other reports by GizPress

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