July 27, 2017

Asian shares fall after Fed rate hike, tracking Wall St lead

19 June 2017, 02:41 | Cesar Cruz

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The U.S. Federal Reserve will probably end its massive bond-buying program this fall, and could start raising interest rates around six months later, Fed Chair. Still, the central bank had signaled to Wall Street it would raise interest rates yesterday, and seemed to have painted itself in a corner.

For savers, it could be time to look around to find a better return.

Ian Kernohan, senior economist at Royal London Asset Management, said: 'The Fed made little changes in the language or projections for further interest rate hikes.

Chris Rupkey, chief financial economist with the Mitsubishi financial group, said the economy was stuck in a rut in the first quarter "and early indications suggested that the slowdown was just temporary until we got hit with this one-two punch of bad economic news for May". It kept rates near zero through most of 2015. The move, which brings the range to between 1% and 1.25%, had been seen as nearly a certainty, and investors were more intrigued by Fed chief Janet Yellen's plan to start rolling back the $4.5 trillion balance sheet, which it packed with government bonds and mortgage-backed securities in an effort to offset the crisis, the Street reports.

Fed officials also announced that they intend this year to begin reducing the $4.5 trillion in Treasury and mortgage securities and other assets the central bank now holds, mostly from extraordinary purchases made since 2008 in an attempt to stimulate the economy. So it could become advantageous for depositors with money tied up in CDs to pull their money out early and sink it into a new one with a higher rate.

Over the coming months, all eyes will be on the next batch of inflation readings.

Think of it as refinancing, in a sense.

"Although many forecasters have pushed back somewhat on the timing of expected policy changes, such as changes to tax policy or fiscal policy more generally", Yellen said, "I would say that, based on my observation of actual spending behavior and my discussions with our wide range of contacts, I haven't seen very much evidence that. expectations of policy changes have driven substantial changes in either consumer spending or investment spending".

We say this because the Fed held interest rates steady at an unprecedented low rate of 0% for almost eight years. That's hardly good enough to justify a rate increase in normal times.

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Currently, the 10-year yield stands at 2.13% compared with 2.30% on December 16, 2015. For savers? Rates should creep up, at least for the highest-yielding CDs and saving accounts, though on average they'll still pay a pittance.

Money market instruments such as Fed fund futures show market players see the likelihood of one more rate hike this year as less than 50 percent.

The Fed's monetary policy committee said that it would begin gradually reducing its holdings of USD4.5 trillion in government bonds and mortgage-backed securities this year.

Stanley says interest rates creeping higher is an opportunity for both depositors and bankers. Neel Kashkari dissented the rate hike.

Q. My credit rating isn't so great. "That's not necessarily the case".

Time will tell, and it shouldn't take all that much time.

"The message should be if you are getting a mortgage to go fixed", he said. But Wall Street is attuned to signs of weaker economic growth, and the combination of sluggish growth and high interest rates, which slow the economy down, may have anxious investors. And those web banks already pay among the most competitive yields.

A retreat in inflation over the past two months has caused jitters among some Fed officials who fear that the shortfall, if sustained, could alter the pace of future rate hikes. What is striking is that the unemployment rate is falling further below the rate at which the Fed figures unemployment should accelerate, but yet it accelerates not.

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