United States lifts interest rates, foresees fewer hikes next year

United States lifts interest rates, foresees fewer hikes next year

United States lifts interest rates, foresees fewer hikes next year

The rate hike, the fourth of 2018, lifted the target range for the Fed's benchmark overnight lending rate by a quarter of a percentage point to a range of 2.25 percent to 2.50 percent.

By diminishing its bond market holdings each month, the Fed puts further upward pressure on interest rates, something Trump explicitly requested them this week to stop.

President Trump has bragged in the past that he's responsible for the economy taking off like a "rocket ship".

Federal Reserve Bank of New York President John Williams said the Fed is open to reconsidering its views on rate hikes next year.

"Nothing will deter us from doing exactly what we think is the right thing to do", he said. "The committee judges that some further gradual increases" in the benchmark rate would be consistent with meeting its goals of stable prices and healthy employment, the statement said. Its updated forecast projects two rate hikes next year, down from three predicted in September.

The Dow Jones Industrial Average dropped 600 points mid-Thursday afternoon before rebounding slightly and closing with a 464-point, 2 percent loss at 22,855, bringing its losses since Friday to more than 1,800 points.

Following the decision, stocks erased gains, 10-year Treasury yields fell and the dollar bounced off its lows of the day.

"We expect additional rate hikes will invert the three-months to 10-year yield curve which is a reliable signal for a bear market for stocks and a coming recession for both the USA and the rest of the world", said Jeffrey Kleintop, Chief Investment Strategist at Charles Schwab in Boston.

The dispute with China, even with a ceasefire declared until March 1 for negotiations, has created fears of slowing USA and global growth, and caused stock markets to retreat, with Wall Street wiping out all of the 2018 gains.

Currency traders took the Fed's lowering of expectations for future hikes as a somewhat dovish turn.

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The central bank has raised rates with steady regularity as the USA economy has strengthened. Wednesday's was the Fed's ninth hike since it began gradually tightening credit three years ago.

After "years of outperformance", US markets are working off "overvaluation in some areas" such as major tech companies, said Shane Oliver of AMP Capital in a report.

Interest rate futures show traders are now betting the Fed won't raise rates at all next year. It's now likely to suit its rate policy to the latest economic data - to become more flexible or, in Fed parlance, "data-dependent".

"Trump's allies in the House can pound their fists on the table all they want, but it's not going to get a wall", Senate Minority Leader Chuck Schumer (D-NY) said earlier Thursday.

But with financial markets in turmoil and fears of recession growing, some critics are questioning the plan. But now, the risks of a surprise could rise. This will allow him to explain any abrupt policy shifts. It is true that valuations for US equities now look much more reasonable than they did a few weeks ago, but it is even truer for global equity markets. Just this week the Fed's projections showed a slowing economy and a slowing set of rate increases, while its statement was a bullish recount of USA strength.

New Commerce Department data released Friday showed the United States economy slowed more than expected in the third quarter, although the economy still appears to be robust. Over the past year, the 30-year mortgage rate has climbed from 3.95 percent to a peak of almost 5 percent in November - a seven-year high. The economy is thought to have grown close to 3 percent this year, its best performance in more than a decade. By 2021, four Fed officials envision reversing course and actually cutting rates to help stimulate the economy. Arguing that the rate hikes hamper economic growth, Trump has openly questioned Powell's leadership. Treasury investors remained on edge after the Fed said quantitative easing was on "autopilot".

"The really important message is the economy is strong".

BlueScope Steel and South32 shed 2.33 and 1.81 per cent respectively, while Fortescue Metals fell 0.36 per cent to $4.115. Those estimates are far below the Trump administration's insistence that its tax cuts would help accelerate annual growth to 3 per cent in coming years. While officials said risks to their outlook "are roughly balanced, " they flagged threats from a softening world economy.

The outlook for Europe, Japan and China is considerably more uncertain than the prospects for the US. And continuing trade tensions between the USA and China have led to growing fears about the outlook for the global economy. Major equity indexes have moved into correction territory and are mostly negative for the year. Vehicle and home sales have slumped as interest rates have climbed.

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