US Fed raises rates, provokes caution in Indian markets

Posted June 20, 2017

While the hike was widely expected, some investors said the central bank's tone was more hawkish and that raised concern about the pace of US economic growth.

A Reuters poll of 21 of the 23 primary dealers that do business directly with the Fed showed 14 of them now believed it would announce the start of its balance sheet normalisation at its September 19-20 policy meeting.

The average 30-year fixed mortgage has a rate of 4.02 percent, the lowest since November 16, 2016, and an average of 0.24 discount and origination points.

"The combination of rising debt burdens and rising interest rates is starting to strain some households, and we're seeing delinquencies pick up from recent lows", McBride says.

"I think we're still in a position where the Fed will continue to be relatively accommodating", Mick Mulvaney, director of the Office of Management and Budget, told reporters Thursday at a briefing on government reorganization efforts.

The WSJ Dollar Index was recently up 0.6% at 88.63, making dollar-denominated metals more expensive to other currency holders.

Fed officials also said they plan to start selling off assets bought during and after the financial crisis.

The Fed has now raised rates four times as part of a normalization of monetary policy that began in December 2015.

But the estimate for the central bank's preferred measure of inflation, the PCE price index, was cut three-tenths to 1.6 percent, while the core PCE, which excludes volatile food and energy prices, was cut two-tenths to 1.7 per cent, according to the Summary of Economic Projections.

Fed policymakers also released their latest set of quarterly economic forecasts, which showed only temporary concern about inflation and continued confidence about economic growth in the coming years. 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.

"There is a lot to digest, and even some apparently conflicting signals, such as the fact that the Fed revised its own inflation outlook slightly down and yet kept its intention to raise rates again this year", said Mitsuo Imaizumi, Tokyo-based chief foreign exchange strategist for Daiwa Securities.

Yellen indicated the Fed still remained confident inflation would rise to its target over the medium term, bolstered by what she described as a robust labor market that is continuing to strengthen.

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. These rates are well below the Trump administration growth goals of 3 percent a year. Economists polled by Reuters had expected a 7-1 vote in favor of no change.

Closely watched trader Art Cashin doesn't believe the Fed's assurance that it plans to raise interest rates at least one more time this year.