US Federal Reserve Raises Interest Rates, Unveils Balance Sheet Cuts for 2017

  • US Federal Reserve Raises Interest Rates, Unveils Balance Sheet Cuts for 2017

US Federal Reserve Raises Interest Rates, Unveils Balance Sheet Cuts for 2017

What's more: inflation wasn't the main disappointment. The pan-European STOXX 600 index dropped 0.5 percent, led lower by the basic resources and oil and gas sectors, as the stronger dollar weighed on metals prices.

Looking ahead, investors are awaiting a number of economic reports, including weekly jobless claims, May import prices, New York's June manufacturing activity and the Philadelphia area's June business conditions.

With recent economic data in the USA fairly mixed and inflation pressure showing signs of easing, why is the Fed in such a hurry? When Wednesday's US inflation data from May was published, the US Dollar briefly plunged.

"The squeeze on the United Kingdom consumer from weak real wages will only filter through slowly but it is coming", Societe Generale strategist Kit Juckes said before the report's release. Inflation was expected to be at 1.7 percent by the end of this year, down from the 1.9 percent previously forecast.

Germany's 10-year government bond yield, the benchmark for the region, rose 3 basis point to 0.27 percent, off a seven-week low hit on Wednesday at 0.225 percent.

Investors were slightly reassured following the Federal Reserve's policy decision on Wednesday evening.

The economy grew at a rate of 1.2 percent in the first quarter of this year, about half as fast as it did in the final three months of 2016.

However, the Fed did lower its inflation forecast for 2017. Among the central banks, the Fed is the most hawkish out there now and the SNB is the most dovish.

The BottomLine: While the Federal Reserve has looked beyond recent data disappointments, the failure to see better growth in the second half could put additional rate hikes on hold and delay the start of balance sheet reductions.

The assumption that rate hikes are bad for stocks could be challenged yet again.

The Swiss National Bank on Thursday defended its oft-repeated claim that the Swiss franc is "significantly overvalued" on Thursday as it kept its key deposit rate (http://www.marketwatch.com/story/swiss-national-bank-keeps-key-rate-unchanged-2017-06-15) at minus 0.75%, where it has stood since early 2015.

Eurozone Industrial production in April increased in line with expectations.

Anticipated inflation is the root of their concern, after Wednesday's consumer price index data missed estimates.

Traders tracked by the CME don't expect the Federal Reserve to raise rates at its September and December meetings.

Longer-term yields have fallen amid sluggish inflation and unspectacular economic growth, flattening the gap between the benchmark 10-year note and shorter three-month bills to the lowest level in almost a year. However, amid other political and economic uncertainties this is unlikely.