Growth worries push stocks lower, Fed hike lifts dollar
- Author: Zachary Reyes Jun 21, 2017,
Jun 21, 2017, 1:16
It was down a point to 2,439. The Dow Jones industrial average gained 0.22 percent or 46.09 points to close at 21,374.56.
Gold prices dropped to a three-week low on Thursday, as the dollar continued to appreciate after the Federal Reserve's Wednesday decision to raise interest rates. A neutral rate implies no negative effect on growth.
Unemployment fell to just 4.3% during May, its lowest point in 16 years.
Those factors mean the Fed's preferred inflation measure will remain below the 2 percent target for some time, but will gradually rise to the target level over "the medium term". They acknowledged that inflation was running below target, but also that job gains have been solid.
They lowered projections for 2017 to 1.6% from their March estimate of 1.9%.
The narrowing began earlier in the day after a weaker-than-forecast inflation report bolstered confidence in long-dated debt. Although it may affect the Bank of Korea's trajectory for its base rate which has remained unchanged for the past year at one.two-five percent.
The dollar index, which tracks the US currency against six major peers, was last up 0.6 percent, and rose as high as 97.557, its highest since May 30. Higher rates make it more expensive for companies and consumers to borrow money, affecting everything from loans to credit card rates to home mortgages.
A retreat in inflation over the past two months has caused jitters that the shortfall, if sustained, could alter the pace of future rate hikes.
In view of realised and expected labour market conditions and inflation, Federal Open Markets Committee (FOMC) chose to raise the target range for the federal fund's rate to 1 to 1-1/4%. It also said the United States economy is growing "modestly so far this year".
We expect another rate hike and some balance sheet normalisation before the end of the year'. Fed officials project growth of roughly 2 percent in 2017.
John Hardy, head of forex strategy at Saxo Bank, told CNBC: "The euro got a bit overextended on the recent run higher as it ran out of new good news to take it higher and the European Central Bank did its utmost to dampen expectations for the beginning of any asset purchase taper". Markets understood that the Fed's decision to hike the fed funds rate by 25 basis points (bps) to 1.25% and the reverse repo rate by 25 bps to 1.0% would not be based exclusively on the flow of economic data since the March and May Fed meetings.