US Fed interest rate hikes keep coming

Ashley Carr
June 21, 2017

The Fed said that while inflation has been low, it is expected to soon hit the 2 percent target. The BoE might underestimate the recent spike in prices, but if two or three MPC members see a need to follow the Fed by hiking rates the pound will appreciate sharply.

CURRENCIES: The dollar rose to 109.75 from 109.57 yen.

The move registered swiftly in markets, with the territory's one-month interbank rate, known as HIBOR, jumping the most in six months, and a gauge of property stocks in Hong Kong retreating more than 1 percent. You can think of this rate increase as the Fed's seal of approval on the economy's progress.

The implementation of its proposed balance sheet normalisation programme – a gradual reduction in Fed's holding of securities - this year, would also depend on how the economy evolves, it added.

The VND/USD exchange rates saw little changes this morning although the US Federal Reserve (Fed) raised interest rates on Wednesday on the confidence in a growing economy and strengthening job market in the world's biggest economy.

Fed policymakers also gave some details for how they intend to shrink their $4.5-trillion balance sheet beginning this year.

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The Bank also outlined its plan of reducing its balance sheet, which it expanded by buying bonds and other securities in order to tackle the housing crisis leading up to the great United States financial meltdown in 2008.

In a separate report, the department announced that USA import prices declined 0.3 percent in May after increasing 0.2 percent in April, while the price index for US exports declined 0.7 percent in May following a 0.2-percent advance in April.

The key interest rate for the Fed will now range from 1% to 1.25%.

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.

"The third rate hike in seven months, coming not long after a relatively poor Q1 GDP print, suggests the Fed has become less data-dependent in its monetary policy decisions", Fitch Ratings Chief Economist Brian Coulton said.

The Fed's decision to raise rates, announced in a statement after its latest policy meeting, was approved 8-1, with Neel Kashkari, head of the Fed's Minneapolis regional bank, dissenting in favor of holding rates unchanged. USA crude fell 3.7 per cent to settle at $44.73 per barrel and Brent settled at $47.00, down 3.5 per cent. Spot gold fell 0.2 per cent to $1,263.03 an ounce.

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