Thursday, 23 November, 2017

Global shares fall on Fed rate hike, UK rate outlook

Traders will be poring over Federal Reserve Chair Janet Yellen's post-meeting comments for a handle on the bank's plans for monetary policyMore Traders will be poring over Federal Reserve Chair Janet Yellen's post-meeting comments for a handle on the bank's plans for monetary policyMore
Debra Rodriguez | 27 June, 2017, 07:49

Yellen once again said the path of interest rates "is not a preset course", but the Fed's quarterly projections show that it still anticipates making a third rate increase this year, with the median federal funds rate ending this year at 1.4 percent. A neutral rate implies no negative effect on growth.

"With employment near its maximum sustainable level and the labor market continuing to strengthen, the Committee still expects inflation to move up and stabilize around 2 percent over the next couple of years, in line with our longer-run objective".

In a post-meeting statement, the central bank's Federal Open Market Committee (FOMC) said that on a 12-month basis, inflation has declined and, like the measure excluding food and energy prices, is running somewhat below 2 percent. Fed officials previously increased the rate in March to a range of 0.75 to 1 percent.

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

Asia-Pacific stocks traded lower as investors took profits in the wake of the United States rate decision, with the Nikkei 225 trading down 0.26 percent and the Hang Seng down 1.20 percent (0952GMT).

"Washington, Jun 15 The Federal-reserve/6562" target=_blank US Federal Reserve has raised its benchmark interest rate by a quarter point to 1.0- 1.25 per cent and signaled another increase remains likely this year, despite the recent spate of weak economic data.

The FTSE 100 has slipped after the US Federal reserve announced an increase in interest rates.

The central bank bought massive quantities of USA government bonds as part of an unconventional monetary policy program to shore up the economy after the 2008 financial crisis, swelling its portfolio from roughly $900 billion to around $4.5 trillion.

This rebalancing could give the Fed the excuse not to hike rates as it would provide additional tightening, Hermes chief economist Neil Williams. The Nasdaq Composite Index dropped 60.09 points, or 0.97 percent, to 6,134.80. Some gains are expected on Wall Street later, with the futures for both the Dow and S&P 500 up 0.1 percent.

Under this scenario, also high-yielding currencies (Emerging Markets or EM currencies) are also prone for depreciating against the dollar (G-10 FX carry index).

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