US Fed raises rates, provokes caution in Indian markets

Ivan Schwartz
June 18, 2017

Greg McBride, Bankrate's chief financial analyst, said: "As expected, the Federal Reserve followed through with an interest rate hike - the third in the past six months and fourth in the past 18 months".

Reuters 3220 "Today the Federal Open Market Committee chose to raise the target range for the federal funds rate by one quarter percentage point bringing it to one to one quarter percent".

The larger jumbo 30-year fixed nosed up to 4.00 percent, and the average 15-year fixed mortgage rate settled at 3.25 percent. Mortgage rates will be higher, as will credit card interest rates and auto loans.

Gold futures tumbled Thursday, extending losses from the previous session after hawkish comments from the Federal Reserve indicating another rate hike in 2017.

A retreat in inflation over the past two months has caused jitters that the shortfall, if sustained, could alter the pace of future rate hikes.

And for this year they are sticking with their prediction that there is likely to be one further quarter point rate rise if economic trends continue.

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The Fed's statement outlining its plans for balance sheet reduction noted that the process would continue until the Fed's balance sheet shrinks to a size conducive to an efficient, effective monetary policy.

"Near-term risks to the economic outlook appear roughly balanced, but the committee is monitoring inflation developments closely", the Federal Open Market Committee said in a statement. Minneapolis Fed President Neel Kashkari dissented in Wednesday's decision.

Policymakers still expect one more rate hike this year.

The Fed raises the interest rate for first time since the crises in December 2015 and policy makers acted in December 2016 and again in March.

A number of Fed officials have spoken of the likelihood of the central bank scaling back its bond holdings which the Fed amassed after the 2008 financial crisis in order to keep long-term interest rates low to support economic growth. The Fed also detailed a plan to unwind its balance sheet through monthly asset sales. Still, the central bank had signaled to Wall Street it would raise interest rates yesterday, and seemed to have painted itself in a corner. That gauge is called core Personal Consumption Expenditures, and it was up just 1.5 percent in the 12 months ending in April.

London's FTSE 100 Index joined global markets in the red after Wednesday's USA interest rate hike and as oil prices remained under pressure. "The recent growth in credit loans highlights that Koreans' disposable income has barely increased", Sung Tae-yoon, an economics professor at Yonsei University, told The Korea Herald. Stocks continued to rise even when interest rates went up.

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