US Fed hike rates for second time this year

Posted June 19, 2017

The Federal Reserve is widely expected to raise rates in Wednesday's FOMC meeting as futures markets have priced in a 0.25% increase which would see the United States dollars carry a 1.25% interest rate.

Earlier Wednesday, the Federal Reserve's policy-setting group, the Federal Open Market Committee, offered more details on its plan to start reducing its monthly reinvestments of maturing Treasuries and mortgage-backed securities. "We have a very strong labor market, an unemployment rate that's declined to levels we have not seen since 2001 and even with some moderation in the pace of job growth, we have a labor market that continues to strengthen".

The Fed's leaders say they expect the world's largest economy to grow at a 2.2 percent annual rate this year, and expand a bit more slowly in 2018 and 2019.

They forecast US economic growth of 2.2% in 2017, an increase from the previous projection in March.

Joseph Gagnon, senior fellow at the Peterson Institute for International Economics and former visiting associate director of the Division of Monetary Affairs at the US Federal Reserve Board, told Radio Sputnik that rates will remain relatively low for some time despite the rate hike. As far as interest rates are concerned, the median forecast was for one further rate increase by the end of 2017. It's either that the recent wobble in economic data is temporary and the next two months should prove it, or the Fed wants to have enough tools in case the economy fell into a new recession.

USA stock futures signalled a rocky start on Wall Street after Wednesday's rate hike and another tumble in tech stocks.

USA core inflation, which strips out volatile food and fuel prices, slowed for the fourth straight month, to 1.7% in May, Bloomberg reported on Wednesday.

Now the Fed said the inflation will be below its 2 percent target. The Fed expects that inflation will not hit the current target, of two percent, and it has revealed plans for unwinding the post-asset purchasing balance sheet, which now totals nearly $4.5 trillion.

U.S. stocks mostly fell while the dollar cut its losses on Wednesday after the Federal Reserve delivered a widely expected USA interest rate hike.

One member of the Fed dissented: Neel Kashkari, who wanted to keep the federal funds rate unchanged. Bob Frick, corporate economist at Navy Federal Credit Union, describes this hike as "another step toward normalizing short-term interest rates and to signal that the economy is doing fine".

On Wall Street, stocks closed mixed after the Fed's announcement. It's the third increase in rates by the Fed since December of 2016.