US Fed raises key rates for 2nd time this year

A weak report on retail sales sent bond yields lower and high-dividend stocks like utilities and real estate companies higher

Federal Reserve Chair Janet Yellen speaks to reporters in Washington, D.C., on Wednesday after the Fed announced it would increase interest rates by a quarter-point. Investors put the odds of a 0.25 percentage point increase by the Fed this month at about 94 percent, according to the CME Group futures exchange. The Fed began buying the bonds after the Great Recession to try to depress long-term loan rates.

The US Federal Reserve lowered its forecast for inflation but raised its prediction for growth, opening the door for further rates hikes in 2017. But the Fed also laid out a plan to reduce the overall size of its balance sheet.

Meanwhile, in view of stable economic conditions, the Fed plans to reduce its 4.5-trillion-U.S. -dollar balance sheet later this year and unveiled a detailed plan to trim its bond holdings.

On Wednesday U.S. stocks closed mixed, with the Dow refreshing its closing record, as Wall Street assessed the Fed's rate hike decision. A neutral rate implies no negative effect on growth.

The yellow metal tends to fare better when interest rates are low and often struggles when interest rates increase.

The policymakers now expect their favored measure of inflation to come in at 1.6 percent this year, down from the 1.9 percent they expected in March and below their 2 percent target.

That said, the Fed would be a little anxious that rising asset prices could cause the economy to "overheat" now that the job market is so buoyant. Unemployment dipped to 4.3 percent in May, a 16-year low.

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One member of the Fed's committee objected to the rate rise.

The vote was 8-1, with Minneapolis Fed President Neel Kashkari dissenting from a rate increase for the second time this year, preferring no change.

The larger jumbo 30-year fixed nosed up to 4%, and the average 15-year fixed mortgage rate settled at 3.25%.

Furthermore, the Energy Information Administration reported a surprising build in gasoline inventories last week, suggesting demand for the summer driving season may not meet expectations as consumers trim spending.

Asian equities were poised to decline as Treasuries rallied and most USA stocks slipped from records after Federal Reserve Chair Janet Yellen suggested weak readings on inflation won't persist as the central bank continued its path of tightening. So far, Trump has sent conflicting signals about whether he plans to nominate her for a second term.

Germany's DAX index is up 0.4 percent and Britain's FTSE 100 0.1 percent.

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