Fed raises rates, unveils balance sheet cuts in sign of confidence


Its key rates were hiked by 25 basis points to a target range of 1.00% to 1.25%, with the Fed citing continued economic growth and job market strength in the U.S. as the reasons for the rise.

It plans to reduce its massive balance sheet gradually, beginning later this year.

We expect another rate hike and some balance sheet normalisation before the end of the year'.

The FOMC anticipates raising these in three-month intervals, in equal amounts, so that in 12 months the caps - which will remain in place - would be $30 billion for Treasuries and $20 billion for MBS.

Experts said that the State Bank of Viet Nam's policies on exchange rates helped the market avoid external shocks, adding that the Fed rate hikes would not have significant impacts on VND/USD exchange rates.

Fed Chair Janet Yellen on Wednesday announced the rate decision which increased the lending cost in the U.S.to the level in South Korea at one and a quarter percent.

Normally, the Fed raises interest rates to combat inflation. The central bank had pushed rates to near Zero in response to the financial crisis. It would start implementing those policies this year, assuming economic growth continues.

They forecast US economic growth of 2.2 percent in 2017, an increase from the previous projection in March.

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The move registered swiftly in markets, with the territory's one-month interbank rate, known as HIBOR, jumping the most in six months, and a gauge of property stocks in Hong Kong retreating more than 1 percent.

With GDP growth expected to remain above its long-term potential over the next few years, and the unemployment rate to remain below its long-run level, the Fed as a whole seems to be willing to look past what it sees as near-term economic noise.

The Fed's preferred measure of underlying inflation has retreated to 1.5%, from 1.8% earlier this year, and has run below the central bank's 2% target for more than five years.

Analysts in recent weeks have become increasingly doubtful there would be a third rate increase later this year, as inflation, consumption and other economic data have indicated the weakness seen in the first quarter has continued.

The Fed said that while inflation has been low, it is expected to soon hit the 2 percent target.

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.

Bloomberg poll revealed that only 5 of 100 economists surveyed expected the FED to maintain the interest rate in the prior range of 0.75-1 percent.