US Fed interest rate hikes keep coming

Alter London close, the Federal Reserve raised overnight rates to 1.25% as universally expected. The average 30-year fixed mortgage has a rate of 4.02 percent, the lowest since November 16, 2016, and an average of 0.24 discount and origination points.

The National Financial Supervisory Committee recently forecast the Fed rate hikes, but small increases each time would not insert significant pressure on exchange rates.

Most U.S. Treasury yields edged higher on Thursday after stronger-than-expected U.S. economic data and as traders weighed hawkish Federal Reserve and Bank of England signals, but remained depressed as they did not fully reverse their biggest plunge in a month Wednesday. Such growth will help China maintain its lead among the major economies and remain a significant contributor to global economic growth.

"Since 1955 there have been 8 instances of 4 rate hikes without intervening cuts". It's either that the recent wobble in economic data is temporary and the next two months should prove it, or the Fed wants to have enough tools in case the economy fell into a new recession. As many as three members of the BoE's policy committee surprised financial markets by voting for a rise in interest rates.

Weighing on Treasury yields and bolstering bond prices, the tepid inflation numbers outweighed traders' concerns over the Fed's announced quarter-point rate hike and plans to reduce its balance sheet this year. In August 2013 Robert Gordon, an economist at Northwestern University, put the natural rate of unemployment at fully 6.5%.

Quantitative Tightening implies "un-printing" of money for an amount of around $600 billion per year, which is huge, and that could in my opinion, probably result in a higher dollar as well as higher "real" rates - despite lower nominal yields.

In explaining the second rate hike of this year and plans for more increases in the coming months, Federal Reserve Chair Janet Yellen said the move reflected progress in the world's largest economy, which continues to add jobs at a solid pace. The Fed foresees one additional rate hike this year but gave no hint of when that might occur. That's the level the Fed believes is a neutral rate — neither stimulating growth nor restraining it.

But the Fed's forecasts are only predictions and are frequently revised as its assessments evolve.

The Fed also bumped up the median projection for US economic growth in 2017 to 2.2%, from 2.1% forecast in March.

The central also updated its projections for inflation to take account of a slowdown. The markets are braced for the inflation indicator to drop to 1.4 percent.

ASIA'S DAY: Japan's Nikkei 225 stock index fell 0.3 percent to 19,831.82 and South Korea's Kospi sank 0.5 percent to 2,361.65.

While the plan itself was seen as dovish, more aggressive was the fact the Fed wasted no time in laying it out. Marvin Goodfriend, an economist at Carnegie Mellon University, has been mentioned for another board spot, and Robert Jones, chief executive of Old National Bancorp in IN, reportedly is a candidate for a board seat designated for a community banker. India's monetary authorities can derive some reassurance that they are not alone in adopting a policy stance that seems counter-intuitive to some in the light of slowing inflation in their respective economies.

  • Zachary Reyes