Mortgage Rates Hovering At 7-Month Lows

The Federal Reserve raised interest rates on Wednesday for the second time in three months, citing continued us economic growth and job market strength, and announced it would begin cutting its holdings of bonds and other securities this year.

The Fed raised interest rates for the second time this year, by a quarter percentage point to a target range of 1.00-1.25 percent and forecast one more rise in 2017.

"Near-term risks to the economic outlook appear roughly balanced, but the committee is monitoring inflation developments closely", the Federal Open Market Committee said in a statement.

As telegraphed in the minutes of the March and May Fed meetings, the committee would like to start reducing its balance sheet later this year and communicate this clearly well in advance with pre-announced caps on the dollar value of Treasury and mortgage-backed securities (MBS) it will allow to roll off each month. The main index, the Kospi, fell 0.46 percent on Thursday to 2,361.65, with institutional investors leading the selling.

The core rate of inflation increased at just 1.7 percent on year, the fourth straight monthly deceleration and the slowest overall pace in two years.

Strategists at Deutsche Bank warned that its European "complacency indicator", which measures valuations relative to market volatility, was at an 11-year high, and the bank expects economic momentum to fade in coming months.

This rebalancing could give the Fed the excuse not to hike rates as it would provide additional tightening, Hermes chief economist Neil Williams. But the rate increase was already priced into most stocks.

The Federal Reserve is hiking a key interest rate for the second time this year and is planning to reduce the size of its $4.5 trillion balance sheet as well. Higher interest rates in the United States would attract more foreign investments, therefore investors can earn more by investing their dollar-denominated assets.

The Fed now sees the unemployment rate ending the year at 4.3 percent, where it sits currently, rather than the 4.5 percent previously expected.

On Friday, the Bank of Japan is widely expected to keep its monetary policy unchanged, and reassure markets it will lag the Fed in tapering its massive stimulus programme, as Japan's inflation remains low despite a strengthening economy. US employers continue to add jobs at a steady rate.

The Fed said inflation likely will fall well short of its 2 percent target this year.

"The U.S. rate hike was in line with expectations, and it will have little impact on the economy", said Lee Ju-yeol, governor of the Bank of Korea, echoing a view held by the finance minister.

Several economic indicators in the past few months, including exports and consumer sentiment, have displayed improvement, prompting the bank to push up its forecast for economic growth this year to 2.6 percent.

  • Zachary Reyes