Asian shares down on Fed hike, Sino-US trade anxiety

Will the Fed Break the Dollar's and S&P 500's Calm

Will the Fed Break the Dollar's and S&P 500's Calm

The Fed has raised rates seven times since late 2015 on the back of the economy's continuing expansion and solid job growth, rendering the language of its previous policy statements outdated.

"Having twice as many press conferences does not signal anything about the pace or timing of future interest rate changes", Powell said. The Fed expects unemployment to fall to 3.6% this year, and, said Powell, "Most people who want to find jobs are finding them".

Fed Governor Lael Brainard, among the most dovish policymakers least anxious to tighten, said on May 31 "the sizable fiscal stimulus that is in train is likely to provide a tailwind to growth in the second half of the year and beyond". The Fed is raising rates gradually to keep the economy in check.

Announcing the decision to increase its target for the fed-funds rate to a range of 1.75% to 2%, the Fed described the U.S. jobs market as "strong" and said economic activity had been rising at "a solid rate".

"The economy doesn't need two more rate hikes, especially with geopolitical risks", such as tariffs, which could slow growth in the USA and around the world, said Gary Pollack, head of fixed-income trading at Deutsche Bank Private Wealth Management.

Economists had predicted the Fed would make this change to overcome the common view that the central bank will not change the benchmark interest rate at a meeting that does not include a press conference, which limits its options. The Fed's preferred price gauge - the Commerce Department's personal consumption expenditures index - rose 2 per cent from a year earlier in March and April, after spending most of the past six years below it. The media forecasts expect the unemployment rate to drop to 3.6% this year, down from March's projection of 3.8%. In the longer run, it maintained the forecast for 1.8% growth.

"The labour market has continued to strengthen. economic activity has been rising at a solid rate", the Fed said in its statement. The committee's forecast for the long-run sustainable growth rate of the economy held at 1.8 per cent, suggesting policy makers are skeptical of the effect of tax cuts on the economy's capacity for growth.

The committee sees further declines the unemployment. Risks to the economic outlook appear roughly balanced. Inflation for the next two years is expected to remain at 2.1%, unchanged from the previous forecast. Inflation expectations are slightly higher this year compared to March's forecast of 1.9%.

The Fed said its policy of further gradual rate increases will be "consistent with sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee's symmetric 2 per cent objective". This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and global developments.

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