Art Cashin: US Economy Isn't as Strong as Fed Thinks

Despite this, the finance ministry said it will strengthen its monitoring of the nation's financial markets and come up with countermeasures.

The latest move by the Fed shows that the central bank continues to believe that the U.S. economy is strengthening.

The post-meeting statement said inflation "has declined recently" even as household spending has "picked up in recent months".

However recent United States rate hikes have belied fears of capital outflows from India, with foreign funds continuing to pump in huge liquidity into the stock market.

Global stocks fell Thursday after the U.S. Federal Reserve raised its key interest rate and the Bank of England revealed it was unexpectedly close to hiking its own benchmark rate at its policy meeting.

Federal Reserve Chair Janet Yellen said she sees the balance sheet unwinding plan beginning soon and that the Fed will keep normalizing its policy provided the economy evolves as expected. The amount of securities the Fed held on its balance sheet ballooned from less than a trillion dollars before the crisis to roughly $4-and-a-half trillion.

Exchange rates remain stable after Fed rate hikes on Wednesday.

The Fed also said in its statement that it expects to begin shrinking its balance sheet starting sometime this year.

While the Fed will continue to reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities and roll over maturing Treasury securities at auction, it plans to gradually reduce its securities holdings by decreasing reinvestments. The central bank forecast another rate increase later this year, alongside efforts to reduce its trillion-dollar holdings of USA government debt.

But the moves were overshadowed by inflation and retail sales data earlier in the day that fell short of market expectations.

USA 10-year Treasury yields were last at 2.134 percent, below their USA close of 2.138 percent.

While the territory effectively imports USA 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.

In a separate report, the department announced that USA import prices declined 0.3 percent in May after increasing 0.2 percent in April, while the price index for US exports declined 0.7 percent in May following a 0.2-percent advance in April.

Overall, gold was subjected to further selling with 3-week lows just below $1,255 per ounce.

  • Zachary Reyes