US Federal Reserve Raises Interest Rates, Unveils Balance Sheet Cuts for 2017


The US Dollar edged higher as investors pin their collective hopes on another rate increase from the Federal Reserve. The rest said the Fed would make such a move later by its December 12-13 meeting. The yield on the 10-year Treasury note was 2.12 percent, the same as shortly before the statement came out. If you've got a $75,000 mortgage or home equity loan - not on a fixed rate - you'll be paying about $15-$20 more in your monthly payment.

The Dow Jones industrial average was up 22 points, or 0.1 percent, to 21,352, little changed from before the announcement.

Money market instruments such as Fed fund futures show market players see the likelihood of one more rate hike this year as less than 50 percent.

The Fed confirmed that it will proceed to trim its $4.5 trillion balance sheet this year.

The yellow metal tends to fare better when interest rates are low and often struggles when interest rates increase. Though the economy is growing only sluggishly and though inflation remains chronically below the Fed's 2 per cent target, it foresees improvement in both measures over time.

The economy grew at an anemic 1.2 percent annual rate from January through March.

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The administration's budget does expect the federal government's interest rate costs to rise, but that is due to the faster economic growth the program is expected to foster, Mulvaney said.

"Traders appear unconvinced by the possibility of another United States rate hike this year, despite what the Fed indicated, with the implied probability of one by December standing at below 50%", said Oanda analyst Craig Erlam. The policymakers signaled that they still expect to raise rates once more in 2017.

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 favour of holding rates unchanged.

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

However, the Fed says it would start reducing its holdings of bonds and other securities in this year, which is a sign of its confidence in US economy's growth and strengthening job market.

The central bank also confirmed that later this year it would begin to implement a plan to reduce the size of its investment holdings, which were built up to record levels during the financial crisis to help support the economy, especially once interest rates reached zero.

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In turn, many bond ETFs, such as the $46 billion iShares Core U.S. Aggregate Bond ETF (AGG), hit their highest levels of the year.

Australia reports on the jobs market Thursday. USA stock markets were relatively flat through afternoon trading, while the yields on 10-year Treasury notes had fallen to 2.11 percent.

Asian equities were poised to decline as Treasuries rallied and most US stocks slipped from records after Federal Reserve Chair Janet Yellen suggested weak readings on inflation won't persist as the central bank continued its path of tightening.

That not only raised concerns for the strength of the US consumer, it also hammered crude prices, which fell around 4% in Wednesday trading and extended that decline overnight in Asia, taking WTI futures for July delivery another 3 cents per barrel lower to $44.67 by 06:60 London time. In Asia, Japan's Nikkei 225 ended the day marginally lower.

The dollar fetched 109.35 yen, not far from Wednesday's eight-week low of 108.81 yen. It is roughly flat against the pound, at $1.2758.

The U.S. Federal Reserved raised its short-term interest rates on Wednesday by one quarter of one percent.

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