Fed hikes key rate and unveils bond trimming plans

Since officials raised rates in March, the unemployment rate has dropped to 4.3% from 4.7%.

Meanwhile, the median projection for the Fed funds rate in 2018 was unchanged at 2.1%.

Prior to the 2008 financial crisis, the Fed's balance sheet totaled under $1 trillion.

She declined to say whether she would like to serve a second term.

Yellen, the first woman to lead the Fed, is serving a term that will end in February.

The markets regarded the increase in interest rates as a dovish hike, according to ANZ economist Giulia Lavinia Specchia in a Thursday morning note.

USA government bond prices rallied Wednesday after the inflation report from the Labor Department, sending the yield on the benchmark 10-year Treasury note to a fresh 2017 low.

As widely predicted, the Federal Reserve announced today that it would raise interest rates by a quarter of a percent. In 3.15pm trading, the Standard & Poor's 500 Index fell 0.4 percent. It was down a point to 2,439. In 3.31pm trading in NY, the Dow Jones Industrial Average eked out a 0.05 percent gain.

They also reduced slightly their estimate for the lowest sustainable level of long-run unemployment to 4.6 percent from 4.7 percent. Hawks tend to worry that rates kept too low for too long could escalate inflation or fuel asset bubbles. The Fed added that economic growth "has been rising moderately so far this year", making no mention of the reported weakness last winter.

"I don't think that there is really too much new in here outside of the fact that the Fed remains committed to the slow gradual normalization process despite some of the weak data that we've had", said Mark Cabana, head of USA short rates strategy at Bank of America Merrill Lynch in NY. The core rate of inflation increased at just 1.7 per cent on year, the fourth straight monthly deceleration and the slowest overall pace in two years. Importantly, the central bank didn't specify a timetable for introducing the caps, saying only that it expected to begin decreasing reinvestments this year. The central bank still sees the economy reaching its 2% inflation goal. It is likely to sell off to a level above its pre-financial crisis holdings, when it had less than $1 trillion.

They forecast U.S. economic growth of 2.2 per cent in 2017, an increase from the previous projection in March.

The Federal Reserve is charged with maintaining "maximum employment, stable prices, and moderate long-term interest rates".

Fed officials are wrapping up their two-day June meeting. The data bolstered some investors' belief that the central bank may hold off raising rates during the second half of the year, and the view boosted demand for Treasurys.

He continued: "Many are expecting at least one more rate rise this year, although that is certainly not a given".

Financial markets have been anticipating the increase. It reached 10 percent in October 2009.

Gold rose after the weaker-than-expected USA data knocked the dollar.

In currency markets, the dollar is up to 110.22 yen from Tuesday's 110.04 yen.

  • Zachary Reyes