Fed raises rates and outlines balance sheet reduction plan

Federal Reserve Chair Janet Yellen steps offstage after speaking at the Federal Reserve System Community Development Research Conference in Washington. There isn’t much suspense about what the Fed wil

WASHINGTON - The Federal Reserve is raising its benchmark interest rate for the third time in six months, providing its latest vote of confidence in a slow-growing but durable economy.

Fed Chairwoman Janet Yellen said the process could begin "relatively soon".

Meanwhile, Yellen dodged questions about whether she would stay on for another term if President Donald Trump asks her to stay.

Asian traders were subdued Wednesday despite a record close on Wall Street as they await the outcome of the Federal Reserve's policy meeting, hoping for guidance on its monetary policy plans.

Also watch out for any comment too from Fed members about the possibility of unwinding some of the QE, by selling bonds back into the market.

US Treasuries rallied, pushing yields on the 10-year note seven basis points lower to 2.13 percent. Earlier in the year, three rate hikes in 2017 seemed nearly a given, but now, the odds of a September move are just 28%.

The Dow Jones industrial average was up 22 points, or 0.1 percent, to 21,352, little changed from before the announcement.

The FOMC signaled it remains hopeful "labor market conditions will strengthen", and said it expects US economic activity to get stronger as well.

The Fed's revised forecasts reduced its estimate for unemployment by year's end to 4.3 percent from a March projection of 4.5 percent.

The Australian dollar rose 1.3 percent to its highest against its USA counterpart since April 3.




Fed officials lowered their median projection for where they see the unemployment rate in the fourth quarter of this year, to 4.3% from the 4.5% they predicted in March.

But there's another crucial indicator that Fed officials are glossing over that could get them into real trouble, causing them to again overestimate the economy's strength and, again, fall short of its inflation goal.

By the end of the year, the Fed projects its benchmark rate will be at a neutral level, neither stimulating nor dampening economic growth.

The latest Fed rate hike, announced in a statement after a policy meeting, comes as the US economy is growing only sluggishly. The policymakers signaled that they still expect to raise rates once more in 2017.

People walk past an electronic stock board showing Japan's Nikkei 225 index at a securities firm in Tokyo, Wednesday, June 14, 2017. The new elements would cover its strategy for reducing the size of its $4.5 trillion balance sheet by phasing out the reinvestment of proceeds of maturing securities on its portfolio.

The Fed announced plans to raise the target range for the federal funds rate to between one and 1.25 per cent. Moreover, higher Fed rates may not change the behavior of banks with excess reserves, more than $2 trillion now on deposit back at the Fed instead of out there in the form of loans - $2 trillion that is not circulating throughout the economy.

It expects to begin the normalisation of its balance sheet this year, gradually ramping up the pace.

Also as a result of the financial crisis, the Fed also started an unprecedented stimulus program to buy long-term bonds - Treasuries and mortgage-backed securities - in a bid to keep down long-term rates, and thus spur business and consumer borrowing and spark economic growth. The Fed still foresees prices, as measured by a gauge tied to consumer spending, rising 2 percent in 2018 and 2019, achieving its target.

The Federal Reserve is expected to announce plans to lift a key interest rate at 2 p.m.

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