Asian stocks fall after Federal Reserve hikes rates
20 June, 2017, 12:46 | Author: Leticia Walters
The Federal Reserve was able to modestly raise rates because of the USA economy's relatively strong performance, in comparison with the U.S. or Europe.
The U.S. Federal Reserve has raised the target range for the federal funds rate to 1 percent to 1.25 percent from 0.91 percent, citing labor market conditions and inflation. Fed leaders, including Chair Janet Yellen, suggested they still expect to raise rates again later in the year.
The vote in favor of the hike was unanimous.
The central bank also confirmed that later this year it would begin to implement a plan to reduce the size of its investment holdings, which were built up to record levels during the financial crisis to help support the economy, especially once interest rates reached zero. It is bloated with the huge number of United States government bonds, or treasuries, and mortgage-backed bonds it bought in the years after the 2008 financial crisis in order to lower long-term interest rates and pump prime the economy with cash. These rates are well below the Trump administration growth goals of 3 percent a year. She noted that-among other things-stabilization in the labor force participation rate is signaling a stronger jobs market.
The Fed is expected to hike the key rate one more time this year.
Meanwhile, Hong Kong's de facto central bank followed the Fed and boosted interest rates for a third time since December past year, elevating the risk of a sell-off in the world's priciest housing market. That gauge is called core Personal Consumption Expenditures, and it was up just 1.5 percent in the 12 months ending in April.
Asian markets fell overnight and European indices following suit, with the Cac 40 in France down almost 1% and Germany's Dax off 0.5%.
This is the second interest rate rise in three months, and most analysts expect that the Fed will increase rates once more this year.
The government reported yesterday that the Consumer Price Index, which is one measure of inflation, fell 0.1 percent in May from the month before. The rest said the Fed would make such a move later by its December 12-13 meeting.
Economist-expert Parviz Heydarov said that the USA economy is now completely out of a hard situation. By the end of 2018, with inflation projected to be very close to the 2% target, and with the economy predicted to be at or above full employment, the Fed foresees a fed funds rate of about 2.0%, consistent with PIMCO's New Neutral thesis.
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