Published: Mon, June 26, 2017
Markets | By Noel Gibbs

United States stocks open lower after Fed rate hike

United States stocks open lower after Fed rate hike

That was the latest sign that inflation is struggling to reach the Fed's 2% target, a development that has been a major factor behind the unexpected strength of the bond market this year.

"With employment near its maximum sustainable level and the labor market continuing to strengthen, the Committee still expects inflation to move up and stabilize around 2 percent over the next couple of years, in line with our longer-run objective". However, mortgage rates are not expected to increase immediately. A USA government report showed that the consumer-price index in May was up 1.9% on an annualized base, dipping below the Fed's 2% target again. As far as interest rates are concerned, the median forecast was for one further rate increase by the end of 2017. These rates are well below the Trump administration growth goals of 3 percent a year.

"As well, yesterday's FOMC (Federal Open Market Committee) meeting was less dovish than expected as the Fed kept its policy forecasts unchanged despite clear deceleration in inflation and a couple of bad data points yesterday".

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The BottomLine: While the Federal Reserve has looked beyond recent data disappointments, the failure to see better growth in the second half could put additional rate hikes on hold and delay the start of balance sheet reductions. The rate sets what banks can charge each other for overnight loans and influences the availability and flow of money in the USA economy.

What investors were eager to receive during Fed chair Janet Yellen's press conference on Wednesday was an update on how the Fed will wind down a balance sheet that ballooned to $4.5 trillion as it bought billions of dollars a month in government debt and mortgage-backed securities to buoy the economy after the crisis.

Even though eurozone growth has been improving, the European Central Bank appeared reluctant to reduce monetary support for the economy, which includes pumping billions of euros into bloc each month.

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The U.S. central bank on Wednesday raised the benchmark interest rates for the fourth time since December 2015, and unveiled plans to start trimming its balance sheet.

Who would have thought that on the day the Federal Reserve hiked its benchmark federal funds rate for the third time in six months, interest rates across the curve would plunge?

US government bonds pulled back Thursday, lifting the yield on the 10-year Treasury note from its lowest level of the year, amid continued fallout from Wednesday's Federal Reserve meeting. Investors were not surprised, and pretty much any serious commercial real estate deal had the likelihood of higher rates accounted for, if funding hasn't been obtained already.

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