Treasuries pare gain, US stocks mixed after US Fed rate hike

The decision lifted the US central bank's benchmark lending rate by a quarter percentage point to a target range of 1.00 percent to 1.25 percent as it proceeds with its first tightening cycle in more than a decade.

Policy makers agreed to raise their benchmark lending rate for the third time in six months, maintained their outlook for one more hike in 2017 and set out some details for how they intend to shrink their $4.5 trillion balance sheet this year.

The US central bank's rate-setting committee said the economy had continued to strengthen, job gains remained solid and indicated it viewed a recent softness in inflation as largely transitory.

"The committee now expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated", the Fed said in its statement.

The Fed also noted inflation is "running somewhat below 2 percent" and "longer-term inflation expectations are little changed, on balance". It also affirmed plans to begin trimming the size of its balance sheet, reducing holdings of bonds and other securities it had been hoovering up to provide the U.S. economy with extraordinary levels of support.

Still, the Fed expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated. The Fed plans to initially start selling mortgage-backed securities and Treasuries totaling $10 billion a month. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

NOGUCHI: But overall, McBride says he shares the Fed's relatively upbeat take on the economy. The Fed foresees one additional rate hike this year, unchanged from its previous forecast. It's the Fed's third rate hike since December. "Most major advanced economies have been suffering from low inflation since the global financial crisis", wrote Kashkari in an explanation of his dissent from the March rate hike.

Benchmark 10-year treasury yields have also suffered falls today, but are seeing a small rebound on the news; they remain almost 4% lower on the day at 2.1238%.

"The market remains highly skeptical that the Fed is going to be able to deliver just based upon underlying data", said Mark Cabana, head of USA short rates strategy at Bank of America Merrill Lynch in NY.

The Fed's key interest rate will now hover in a range between 1% and 1.25%.

  • Zachary Reyes