Is a deep correction looming over the USA stock market?

Lee Ju-yeol, governor of the Bank of Korea, recently hinted at the possibility of an interest rate hike and said, "we may need to adjust the degree of monetary easing".

The US Federal Reserve increased its key interest rate by 0.25% to a 1.00%-1.25% range on Wednesday, maintaining its view that three total rate hikes in 2017 will be appropriate.

Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the committee's 2 percent objective over the medium term.

The Fed's estimates for the unemployment rate by the end of this year moved down to 4.3 percent, the current level, and to 4.2 percent in 2018, indicating the Fed believes the labor market will continue to tighten.

Policymakers are determined not to show that they are concerned, and are noting that the weakness is likely transitory.

The Dow Jones closed up by 46 points last night, while the S&P 50 was negative, as were the Asian markets.

Still, the Fed wants to go ahead with the balance sheet pruning. The move follows a record run of jobs growth in the USA that has driven the unemployment rate down to its lowest level in 16 years.

Fed said the timing and size of future adjustments will depend on the committee's assessment of realised and expected economic conditions relative to its employment and inflation targets.

Second, the Fed is already behind the curve, and it has to accelerate its pace in raising rates.

Despite the increase - the fourth since December 2015 - interest rates remain near historic lows, but the move will mean higher borrowing costs for consumers.

"The FOMC's decision to execute its normalization plan despite recent soft economic data has forced gold to retreat after its earlier exaggerated rally", said Tai Wong, director of base and precious metals trading for BMO Capital Markets in NY.

The decision came even though inflation is below the central bank's target.

Expressing confidence that the United States economy is recovering, the Federal Reserve said America's labour market has "continued to strengthen" and economic activity has been "rising moderately" so far this year.

The Fed also outlined its plan to reduce its $4.2 trillion (€3.7tn) portfolio of Treasury bonds and mortgage-backed securities, chiefly purchased after the financial crisis hit.

The Fed has a mandate to keep the country at full employment and make sure inflation does not rise or fall too much.

The median estimate of the long-run neutral rate, which is seen as the level of monetary policy that neither boosts nor slows the economy, was unchanged at 3.0 percent. The decision which was taken on Wednesday was in the 8-1 vote.

While the territory effectively imports United States monetary policy due to its currency peg, local banks have been reluctant to pass on higher rates to customers amid fierce competition for mortgages - heightening a property boom, as well as fueling depreciation in the Hong Kong dollar.

  • Zachary Reyes