USA raises rates, but will we see a third hike in 2017?

USA raises rates, but will we see a third hike in 2017?

USA raises rates, but will we see a third hike in 2017?

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.

The key interest rate for the Fed will now range from 1% to 1.25%. In fact, in the Summary Economic Projections that accompanied the interest rate decision, the Fed's median forecast for GDP growth for 2017 actually ticked higher, up to 2.2%, from 2.1% in March.

The Fed raised its rate by a quarter percentage point on Wednesday to one-and-a-quarter-percent citing great progress in the US economy including an increased number of jobs and a drop in the unemployment rate.

"We have a very strong labor market, an unemployment rate that's declined to levels we have not seen since 2001".

The Fed also gave a first clear outline on its plan to reduce its $4.5-T portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in the wake of the Y's 2007-2009 financial crisis and recession.

"Asset sales would be deferred, but their replacement-rate on the balance sheet tapered increasingly every three months".

One member of the Fed dissented: Neel Kashkari, who wanted to keep the federal funds rate unchanged.

"The combination of rising debt burdens and rising interest rates is starting to strain some households, and we're seeing delinquencies pick up from recent lows", McBride says.

The markets regarded the increase in interest rates as a dovish hike, according to ANZ economist Giulia Lavinia Specchia in a Thursday morning note.

Mulvaney said he hoped Yellen is right in maintaining that the move wouldn't restrict the Fed's ability to conduct monetary policy. The new rate of one to one and a quarter percent is on par with the level of South Korea's.

In her press conference after the announcement, Fed Chair Janet Yellen asserted that USA economic growth appears to have rebounded enough to justify both higher rates and a return of Fed-held assets to the wider market.

Financial markets have been anticipating the increase. In Asia, Japan's Nikkei 225 ended the day marginally lower.

In Frankfurt the DAX index fell by 0.86% to 12,695 while the CAC 40 dropped 0.43% in Paris, to close at 5,220.

In currency markets, the dollar is up to 110.22 yen from Tuesday's 110.04 yen.

However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.