US Federal Reserve hikes rates again as confidence in the economy grows

Stocks slide as investors seek safety after weak sales data

Stocks slide as investors seek safety after weak sales data

The Fed raised interest rates by 25 basis points, with a new target range of 1% to 1.25%. These rates are well below the Trump administration growth goals of 3 percent a 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. There would be gradually rising monthly offloading targets for different types of securities that the Fed holds on its balance sheet.

The central bank updated its inflation projections to take account of a slowdown. Investors put the odds of a 0.25 percentage point increase by the Fed this month at about 94 percent, according to the CME Group futures exchange.

"This suggests the equilibrium nominal fed funds rate would be 3.5%-4% if real rates normalise in line with our estimate of USA potential growth at slightly below 2%", it said.

Fed Chair Janet Yellen was holding a press conference at 2:30 p.m. EDT (1830 GMT). However, with the increased risk of political turmoil, it's highly unlikely that the BoE will hike rates anytime soon unless inflation went out of control.

"Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined", the Fed said in a statement after a Federal Open Market Committee meeting.

The Bank also outlined its plan of reducing its balance sheet, which it expanded by buying bonds and other securities in order to tackle the housing crisis leading up to the great USA financial meltdown in 2008.

Yet the Fed's decision was over-shadowed by surprisingly weak USA economic data released before the rate announcement. The dollar would get strengthened by the Fed's move.

The US Federal Reserve lowered its forecast for inflation but raised its prediction for growth, opening the door for further rates hikes in 2017.

They forecast US economic growth of 2.2 percent in 2017, an increase from the previous projection in March.

It seems the Fed is no longer data dependent as before and wants to carry on with the normalization process despite weakness seen in some economic releases.

Joseph Gagnon, senior fellow at the Peterson Institute for International Economics and former visiting associate director of the Division of Monetary Affairs at the US Federal Reserve Board, told Radio Sputnik that rates will remain relatively low for some time despite the rate hike.

Yellen would not comment on her future beyond her intention to serve out her term as chairwoman, which ends next February.

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