Published: Wed, June 28, 2017
Money | By Armando Alvarado

Doubts cast over Fed ability to raise rates again in 2017

Doubts cast over Fed ability to raise rates again in 2017

June 14 (Reuters) - U.S. stocks were little changed on Wednesday after the Federal Reserve made a widely expected move to raise interest rates for the second time in three months.

The Federal Reserve is widely expected to raise rates in Wednesday's FOMC meeting as futures markets have priced in a 0.25% increase which would see the Dollars carry a 1.25% interest rate.

"The committee now expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated", the Fed said in its statement. U.S. Federal Reserve on Wednesday raised the benchmark interest rates for the fourth time since December 2015, and unveiled plans to start trimming its balance sheet. It would increase this amount by $6 billion every quarter until it reaches monthly reductions of $30 billion. A local expert says the US rate hike could actually help Korea resolve its massive household debt problem, which topped a staggering 1.2-trillion USA dollars in the first quarter.

"The Fed announcing an update to their reinvestment principles leaves September open".

Yellen said at a press conference that the reduction should be "gradual" and "predictable", adding that "we continue to feel the economy is doing well".

Chris Low of FTN FINANCIAL said the Fed "compromised" by continuing the rate increases despite falling inflation, but "the market expects the Fed to take a break". It forecast that prices will rise just 1.6 per cent this year, down from a March forecast of 1.9 per cent. Most analysts believe the Fed will raise the federal funds rate — what banks charge each other for short-term loans — for the second time this year.

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Wednesday's retail sales data is also expected to have slowed from the previous month.

Now the Fed said the inflation will be below its 2 percent target.

Given recent political turbulence in Washington, it's unclear if President Donald Trump will get his wish for Congress to pass dramatic tax cuts and infrastructure spending which could further stimulate the economy. Fed members still expect one more rate hike in 2017 and three in 2018.

Fed officials now expect the USA unemployment rate to end the year at 4.3 percent, down from the 4.5 percent they predicted in March.

"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". Neel Kashkari dissented the rate hike.

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