US Fed interest rate hikes keep coming

Ivan Schwartz
June 17, 2017

The US Federal Reserve on Wednesday raised its benchmark interest rate by a quarter-point to 1 to 1.25 percent and said that another increase remains likely this year, despite the recent spate of weak economic data.

Butterfield Bank has jacked up lending rates by 0.25 of a percentage point after the US Federal Reserve yesterday raised its short-term rates by the same amount — the third American increase since December.

While the Fed will continue to reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities and roll over maturing Treasury securities at auction, it plans to gradually reduce its securities holdings by decreasing reinvestments. She suggested that balance sheet normalization could be put into effect "relatively soon". While some asset prices do appear elevated and investors would face losses from a stock market correction, "it's not the Fed's job to protect investors from losses", he said.

Earlier, President Donald Trump warned that the dollar "is getting too strong", repeating his opinion that the currency's gain makes American products less competitive globally. To start, the Fed will only invest money back into the market if it gets back more than $6 billion in principal returned a month.

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The Fed has now raised rates four times as part of a normalization of monetary policy that began in December 2015. Board members didn't alter their projections for the economy much compared with what they had expected in March.

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However, with the economy in the US much more improved at this time, it does not need as much monetary help from the Fed. The central bank had pushed rates to near Zero in response to the financial crisis.

They lowered projections for 2017 to 1.6% from their March estimate of 1.9%. The Hang Seng in Hong Kong dropped 1.2 percent to 25,565.34, but Shanghai's Composite index rose 0.1 percent lower to 3,132.49. Hence, the parlance that rate hikes are bad for stocks. But the Fed maintained its forecast for three rate hikes next year. "Until we see a reversal of the recent weakness in economic growth, retail sales and inflation, the Fed will be on the sidelines".

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%. But the central bank remained adamant that economic growth is raising moderately while inflation will start to rise to the bank's 2% target over the medium term.

"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 United States between August 2005 and September 2007, but Korea survived".

Other reports by GizPress

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