Global shares fall on Fed rate hike, plunge in oil prices

The Federal Reserve raised interest rates for the third time since December, something investors had widely expected based on the Fed's recent statements.

"The committee now expects to begin implementing a balance sheet normalisation programme this year, provided that the economy evolves broadly as anticipated".

The Citi US Economic Surprise Index has started to fall off its peak and is now close to the trough seen at the beginning of previous year, which suggests recent economic figures have basically lagged behind market expectations.

The Fed now sees the unemployment rate ending the year at 4.3 percent, where it sits currently, rather than the 4.5 percent previously expected.

Data showed that New Zealand's economy grew 0.5 percent in the three months to March, lower than the 0.7 percent growth forecast in a Reuters poll and well below the central bank's forecast for 0.9 percent growth.

LOCAL bonds rallied and key domestic interest rates fell on Thursday as markets shrug off the second rate-hike this year by the US Federal Reserve. Meanwhile, it raised interest rates by 25 basis points on Wednesday and unveiled more details on how it plans to reduce the size of the balance sheet. While the increase reflects renewed confidence in the United States job market and the wider economy, some critics remain concerned the current level of inflation still isn't high enough to justify the decision.

The government reported yesterday that the Consumer Price Index, which is one measure of inflation, fell 0.1 percent in May from the month before.

United States rates are now at their highest level in nine years.

Given the stable economic conditions, the Fed also expects to begin the normalization of its 4.5-trillion-U.S. -dollar balance sheet later this year.

The dollar was up half a percent against both the euro and the Japanese currency, at $1.1161 per euro and 110.080 yen.

So why hike? The Fed's statement chose to downplay the recent data as temporary.

The dollar index was little changed on Thursday after sliding to as low as 96.323 on Wednesday, having shed almost 6 percent on the year, before bouncing back a tad on the Fed's policy tightening.

A slide in technology stocks pulled down the Nasdaq Composite on Wednesday and the S&P 500 ended slightly lower, as investors anxious about the pace of economic growth after weaker-than-expected inflation numbers and an interest rate hike from the Federal Reserve. Starting sometime this year, Yellen says the Fed will start gradually reducing those holdings by as much as $600 billion a year. USA employers continue to add jobs at a steady rate.

In a sign that the squeeze on consumers may get tighter before long, three Bank of England policymakers voted to raise rates against five for keeping rates on hold.

Brent crude oil was down 0.3 percent to $46.87 a barrel after hitting its weakest since May 5.

  • Zachary Reyes