Published: Mon, June 19, 2017
Economy | By Annette Adams

Intermediate Treasuries Sell Off on Fed's Plan to Shrink Balance Sheet

Intermediate Treasuries Sell Off on Fed's Plan to Shrink Balance Sheet

The Atlanta Fed forecast that economic growth will accelerate to 3.0 percent annualized rate in the second quarter.

With GDP growth expected to remain above its long-term potential over the next few years, and the unemployment rate to remain below its long-run level, the Fed as a whole seems to be willing to look past what it sees as near-term economic noise.

The average 30-year fixed mortgage has a rate of 4.02 percent, the lowest since November 16, 2016, and an average of 0.24 discount and origination points.

CURRENCIES: The dollar edged lower to 109.56 from 109.57 yen.

On Wednesday, the US Federal Reserve announced a small increase to its key interest rate of 0.25 percent, which raised the central bank's key target rate to a range of 1 percent to 1.25 percent. The Fed plans at least two more rate hikes this year. Put another way, when a 10-year Treasury on the Fed's books comes due, the money it gets back from that investment will not be used to go out and buy another Treasury.

The Fed's preferred measure of underlying inflation has retreated to 1.5%, from 1.8% earlier this year, and has run below the central bank's 2% target for more than five years.

Fed raises rate, plans balance sheet reduction

The Fed also gave a first clear outline on its plan to reduce its $4.5-T portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in the wake of the Y's 2007-2009 financial crisis and recession. The FTSE 100 of Britain dropped 1.1 percent to 7,393.

Your credit card issuer or home equity lender is about to bump up your interest rate again, as Federal Reserve Board Chair Janet Yellen and her colleagues have raised a key short-term rate for the third time since December.

ENERGY: Oil futures had plunged overnight after the USA government said oil supplies shrank only slightly last week while gasoline stockpiles grew. Minneapolis Fed President Neel Kashkari dissented in Wednesday's decision. Shares in Southeast Asia were mostly lower.

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.

In a statement Wednesday, the policymakers said that "the labor market has continued to strengthen and that economic activity has been rising moderately so far this year".

"Because the Korean market rate has been rising, the possibility of a rapid capital outflow due to Fed's rate increase, is deemed low; Korean policy rates were lower than U.S. between August 2005 and September 2007, but Korea survived".

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