Published: Wed, June 28, 2017
Economy | By Annette Adams

Fed raises rates, unveils cuts to bond holdings in sign of confidence

Fed raises rates, unveils cuts to bond holdings in sign of confidence

The Fed statement pointed to another rate increase in 2017 and three additional 25 basis point increases in 2018 as the central bank remained committed to a "neutral" interest rate of 3%.

"We think the fall in actual real rates is explained by the slowdown in potential GDP growth driven by demographics and weaker productivity growth, and by an elongated credit and monetary policy cycle".

The Fed noted that the jobless rate is at a 16-year low, the job market is growing and inflation is low. Fed policymakers now expect the rate to be at 4.3 percent by the end of the year, down from a March forecast of 4.5 percent. Yellen said the balance sheet would be gradually rolled back in a process that would be as exciting as "watching paint dry".

'I still expect this to be the last hike for 2017, given emerging headwinds for the USA economy, in particular for consumption, as well as the worryingly weak inflation and wage growth paths'.

Greg McBride, an analyst with consumer financial site Bankrate.com, tells NPR's Yuki Noguchi that, taken together, the Fed's moves have caused home equity and auto loan rates to increase about 1 percentage point over the last two years. Only Neel Kashkari, president of the Minneapolis Fed bank, opposed the increase.

Fed Chair Janet Yellen was holding a press conference at 2:30 p.m. EDT (1830 GMT).

US consumer prices, a measure of inflation, fell 0.1% in May, as a fall in energy prices, airline fares and apparel weighed on the pace of inflation, the labor department said.

The surprise helped to strengthen the dollar at the expense of the euro.

The Fed also put out a statement about its plans to unwind its very big bond portfolio, bought as part of its bid to restart the United States economy after the 2007-09 recession.

At Bank for Investment and Development of Việt Nam (BIDV), exchange rates saw no change compared with Wednesday, being listed at VNĐ22,665 for buying rate and VNĐ22,735 for selling rate.

The statement is much more hawkish compared to the April statement, as it indicates that it is keeping its options open for a third rate hike in 2017 and also adjustments to its balance sheet but subsequent hikes would depend on how economic conditions develop and also on the government's fiscal stance.

The Fed's meeting was the first since May's job report was released. Fixed income traders are clearly unconvinced with the Fed's hawkishness. So far, Trump has sent conflicting signals about whether he plans to nominate her for a second term.

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