Fed raises rates for second time in 2017

Fed raises rates for second time in 2017

The Committee now expects to begin implementing a balance sheet normalisation program this year, provided that the economy evolves broadly as anticipated.

It expects to begin the normalisation of its balance sheet this year, gradually ramping up the pace.

Consumer prices in May were up by 1.9% compared to the same month a year ago, a deceleration from the 2.2% year-over-year increase seen in April.

Indeed, the committee nudge up its full-year GDP forecast from 2.1 percent in March to 2.2 percent now even as it cut the inflation outlook. British inflation had held close to zero throughout 2015 - but has surged since then as a weak Brexit-hit pound raises import costs. Under the plan, the Fed will initially allow $6 billion per month in principal from maturing Treasury securities to run-off.

Officials didn't reveal the exact timing of when the process will begin this year, as well as specifically how large the portfolio might be when finished.

Following a two-day meeting, the Federal Open Market Committee (FOMC) has voted by a majority of 8 to 1 to increase the Federal Funds Rate to 1%-1.25% from 0.75%-1%.

Gold futures also spiked higher Wednesday after the economic data was released. Firstly, investors want to find clues about the Fed's stance on further rate raises this year (whether U.S. political turmoil has made the Fed more cautious and whether a slowdown in economic growth and inflation at the start of 2017 is still regarded "transitory" by the Fed).

Although President Donald Trump's relationship with the Fed has been friendly to date, that doesn't mean Chairwoman Janet Yellen is likely to stay on, the Wall Street Journal reports.

This is the third rate hike the Fed has made since December. The Fed largely shrugged off softer economic data in the May meeting statement, and markets will be tuning in for any change to this language, as well as any adjustment to the Fed's inflation outlook given that market-based inflation expectations have decreased slightly over the past month.

The revised economic forecast bowed to reality by reducing its estimate for unemployment by years end to 4.3 percent from a March projection of 4.5 percent. London's FTSE 100 rose 0.5 percent to 7,541.

The Fed targets 2% headline inflation growth, but it has struggled for years to hit that. He billed his plan as a way to accelerate economic growth from the sluggish 2.1 percent annual rate of the past eight years.

The Canadian currency is in the middle of its best week since April of previous year, up 2.5 percent since last Friday.

Recent Fed members speeches suggest there has been a shift among some members but there will need to be a significant change in the dot plots for the markets to further reduce discounting a third hike this year and to maintain bearish pressure on the greenback.

"Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined", the FOMC statement said.

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