US Fed raises rates, provokes caution in Indian markets
- Author: Zachary Reyes Jun 17, 2017,
Jun 17, 2017, 19:57
On Wednesday evening markets expected the Fed's 0.25% rate rise.
"Relatively soon" is a pet phrase of the Fed, which also used it last November to describe the timing of a rate hike that came the following month. It gave no hint of when that might occur.
"If we base our outlook for inflation on these actual data, we shouldn't have raised rates this week", Kashkari said Friday in an essay published on the Minneapolis Fed's website. Sterling strengthened against the dollar on Thursday on signs of a shift in the Bank of England's stance on keeping interest rates at record lows, before giving up its gains on nagging investor caution over the outlook for the United Kingdom economy. With the June rate hike now in the books, the Fed has already implemented two of those increases. Australia's jobless rate fell to four-year lows in May as hiring blew past all expectations for a third straight month, the most emphatic sign yet that the labour market was hitting its stride after an alarmingly long dormant period. Unemployment dipped to 4.3 percent in May, a 16-year low. We expect another rate hike and some balance sheet normalisation before the end of the year'. That's comfortably below the Fed's 5% target for the long-run normal rate of unemployment.
On Wednesday, the Fed said it would eventually allow a small amount of bonds to mature without being replaced - an amount that would gradually rise as markets adjusted to the process.
Experts said that the State Bank of Viet Nam's policies on exchange rates helped the market avoid external shocks, adding that the Fed rate hikes would not have significant impacts on VND/USD exchange rates.
Under the plan it unveiled, the Fed would start with monthly reductions in Treasury holdings of no more than $6 billion and $4 billion in mortgage bonds. It has been done for the second time in 3 months.
"We believe Asia rates generally will follow the USA, but given the ample liquidity in the system, we would expect the pace of rate rises to remains gradual".
Nautilus Research looked into how the market reacted in the past to fourth rate hikes that were not accompanied by a cut.
BlackRock global fixed income chief investment officer Rick Rieder said the Fed move was fully justified, considering how monetary policy is supposed to be forward looking. That's the level the Fed believes is a neutral rate - neither stimulating economic growth nor restraining it.
But policymakers' inflation forecasts are more optimistic than forecasts by Fed staff, who provide economic intel to the Fed Board of Governors.
They forecast US economic growth of 2.2% in Y 2017, an increase from the previous projection in March.
The FOMC also released their latest set of quarterly economic forecasts, which showed only temporary concern about inflation and continued confidence about economic growth in the coming years.
Mulvaney said the administration did not factor the Fed's balance sheet intentions into Trump's proposed budget.
The central also updated its projections for inflation to take account of a slowdown.