Fed hikes rates third time in six months

Ivan Schwartz
June 27, 2017

Shares fell in Asia on Thursday after the U.S. Federal Reserve raised interest rates, as expected.

Not all observers agree though and plenty are sticking with the view that a further Fed rate hike is inevitable later this year.

The Fed's announcement means its target for its benchmark interest rate, which influences consumer spending and business lending, will rise to between 1 and 1.25 per cent.

"I really do think that she really kind of pushed some of those naysayers aside and, candidly, that third rate hike may just be justified", Gibson said in an interview with "Closing Bell".

The Fed said as well that it is planning to gradually start selling assets that it purchased during and after the US financial crisis to help give a boost to the economy.

Now the Fed said the inflation will be below its 2 percent target.

The Fed now sees the unemployment rate ending the year at 4.3 percent, where it sits currently, rather than the 4.5 percent previously expected.

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While the territory effectively imports U.S. monetary policy due to its currency peg, local banks have been reluctant to pass on higher rates to customers amid fierce competition for mortgages - heightening a property boom, as well as fueling depreciation in the Hong Kong dollar. The Fed began buying the bonds after the Great Recession to try to depress long-term loan rates.

ANALYST VIEWPOINT: "Asian markets were seen broadly lower this morning, taking little cues from overnight markets". From there, the "cap" will increase by $6 billion every three months over the course of a year until it hits $30 billion a month.

The process could start "relatively soon", Fed Chair Janet Yellen said.

FOMC expects gradual policy adjustments and expects further strengthening in the labor market. The forecast for 2018 remained the same at 2.1 percent. A neutral rate implies no negative effect on growth.

But the Fed's forecasts are only predictions and are frequently revised as its assessments evolve.

Earlier on Wednesday, the Labor Department reported consumer prices unexpectedly fell in May, the second drop in three months. Some also note that political paralysis in Washington has raised doubts about whether Congress will increase the nation's borrowing limit and pass a new budget. It has been done for the second time in 3 months. The Fed balance sheet held assets below $1trn in 2007 which now stands at $4.47trn.

They forecast US economic growth of 2.2 percent in 2017, an increase from the previous projection in March. Joblessness in the USA dropped to a 16-year low at 4.3 percent in May. It also signaled Fed officials are convinced the economic slowdown over the winter was temporary. It fell $1.73, or 3.7 percent, to settle at $44.73 a barrel in NY. In addition, inflation has declined recently and, like the measure excluding food and energy prices, is running somewhat below 2 percent, it said.

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