Junio 24, 2017

US Fed raises rates, provokes caution in Indian markets

18 Junio 2017, 05:13 | Dolorita Barahona

Most U.S. Treasury yields edged higher on Thursday after stronger-than-expected U.S. economic data and as traders weighed hawkish Federal Reserve and Bank of England signals, but remained depressed as they did not fully reverse their biggest plunge in a month Wednesday.

If the Fed Funds rate moves up to 3 percent over the next two years, Shiller said, would bode poorly for Treasurys.

The vote in favor of the hike was unanimous.

The US Federal Reserve's interest rate hike is likely to worsen South Korea's rising household debt problem, dampening domestic demand and possibly hurting exports to emerging markets, experts said on June 15.

Once the Fed starts to normalize its balance sheet, the impact could remain minimal as the Fed plans to offload $6 billion in US Treasuries each month.

"The fact that the Fed is tightening against the backdrop of slowing inflation implies that the market continues to price in policy error", Jabaz Mathai, head of US rates strategy at Citigroup Inc., said in a note.

Looking forward to the second half of the year, Stupnytska notes that a tighter labour market could put upward pressure on wages and prices, but argues there is considerable uncertainty around both the extent and timing of this.

There was little reaction in the Treasury or mortgage-backed bond market yesterday.

There's a lot of noise right now when it comes to bank stocks.

Kaplan also repeated his call for immigration reform, continued trade with Mexico and more global integration as ways to counter slow US economic growth.

The rise was widely anticipated after a low unemployment rate, but other economic gauges, including inflation, have been weaker. No major policy changes were made, as expected, and the central bank once again repeated its oft-stated assertion that "the Swiss franc is still significantly overvalued". At 8:30 A.M. EDT this morning, the Census reported that retail sales fell 0.3% in May, which presumably was the driving factor behind the day-over-day change in the 10-year rate. In gradually removing some of the highly stimulative policies that it introduced during and after the Great Recession, she explained, the Fed was trying to avoid a situation "where we have done nothing and then need to raise the funds rate so rapidly that we risk a recession".

Fed Chair Janet Yellen set out a new policy to reduce these huge portfolios by declining to reinvest in these securities each time some of them mature and pay back.

But since then, long-term mortgage rates have declined and are back to nearly exactly where they began: The 30-year averaged 4.04 percent last week.

The president wants $1 trillion worth of work on the ground and we expect to give it to him. However, mortgage rates are not expected to increase immediately.

That would be followed by three rate increases in 2018 and three more in 2019, with the key rate at 2.9 percent by the end of that period.

"The third rate hike in seven months, coming not long after a relatively poor Q1 GDP print, suggests the Fed has become less data-dependent in its monetary policy decisions", Fitch Ratings Chief Economist Brian Coulton said. Inflation is thus moving away from the Fed's 2% target, as opposed to toward it.

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