United States raises rates, but will we see a third hike in 2017?

Federal Reserve policymakers on Wednesday enacted their third small hike in a key interest rate in six months, a move that will push it above 1 percent for the first time since the 2008 financial crisis. It has been done for the second time in 3 months.

This is the second interest rate rise in three months, and most analysts expect that the Fed will increase rates once more this year.

U.S. markets were mixed following the news on Wednesday, with the Dow Jones hitting a record high of over 21,332.77 as technology stocks continued their recovery after a major sell-off earlier this week. Higher rates make it more expensive for companies and consumers to borrow money, affecting everything from loans to credit card rates to home mortgages.

As long as the economy "evolves broadly as expected", the plan "would gradually reduce the Federal Reserve's securities holdings", the FOMC statement said. "We have a very strong labor market, an unemployment rate that's declined to levels we have not seen since 2001 and even with some moderation in the pace of job growth, we have a labor market that continues to strengthen".

Exchange rates remain stable after Fed rate hikes on Wednesday. And the reason is a fear that it will get tripped up by inflation.

The Fed's statement outlining its plans for balance sheet reduction noted that the process would continue until the Fed's balance sheet shrinks to a size conducive to an efficient, effective monetary policy. The caps will be increased every three months until they reach fully phased-in levels. "They've not really changed their plans yet and have a wait and see attitude", Yellen said.

Officials at the USA central bank also cut their inflation forecast, one of the final indicators to pick up momentum over the past few years. Higher interest rates in the United States would attract more foreign investments, therefore investors can earn more by investing their dollar-denominated assets.

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

Quarterly projections for 2018 and 2019 showed Fed policy makers largely maintained their expected path for borrowing costs.

  • Joanne Flowers