Federal Reserve Moves Interest Rates Higher

GBPUSDJune14a

Federal Reserve Raises Interest Rate Slightly

The Dow Jones industrial average rose 0.2 per cent, to a record 21,374.56.

Federal Reserve chair Janet Yellen said the rate increase reflected the "progress the economy has made and is expected to make towards the maximum employment and price stability objectives assigned to us by law".

It expects to begin the normalization of its balance sheet this year, gradually ramping up the pace. When that was the time they dropped interest rates and bought up United States coffers and mortgage-backed securities to keep rates low.

The Fed's preferred measure of underlying inflation has retreated to 1.5%, from 1.8% earlier this year, and has run below the central bank's 2% target for more than five years.

Australia's S&P/ASX 200 tumbled 1.13 percent, driven by weakness in its materials and energy sub-indexes, which were down 2.3 percent and 2.31 percent respectively.

They forecast US economic growth of 2.2% in Y 2017, an increase from the previous projection in March. Inflation was expected to be at 1.7% by the end of this year, down from the 1.9% previously forecast. These rates are well below the Trump administration growth goals of 3 percent a year.

Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, July 1, 2016. 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". The rate sets what banks can charge each other for overnight loans and influences the availability and flow of money in the US economy. The decision which was taken on Wednesday was in the 8-1 vote.

"It remains to be seen if the Fed can really do both this year - raise rates again, and also begin reducing its balance sheet", Imaizumi added. "Hence there is another rate hike on the table for this year", said Naeem Aslam, chief market analyst at ThinkMarkets UK, in a note.

Fed officials are wrapping up their two-day June meeting.

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.

The euro was down 0.3 percent at $1.1183, a six-day low, while the yen was flat at 109.58 per dollar. One-year NDFs are settled against the midpoint, not the spot rate.

Financial markets have been anticipating the increase.

Stocks were also weighed down as Brent crude remained under 47 United States dollars a barrel, down another 0.1% at 46.84 USA dollars and languishing at the lowest level for almost a year.

The U.S. central bank on Wednesday raised the benchmark interest rates for the fourth time since December 2015, and unveiled plans to start trimming its balance sheet.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.7 percent, led by resource shares.

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