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Fed raises rates, unveils cuts to bond holdings in sign of confidence


Shares fell in Asia on Thursday after the U.S. Federal Reserve raised interest rates, as expected.

The shekel-dollar exchange rate has fallen to a new 3-year low (since August 2014) despite the US Federal Reserve's decision yesterday to raise the interest rate by 25 basis points to the 1%-1.25% range. A local expert says the US rate hike could actually help Korea resolve its massive household debt problem, which topped a staggering 1.2-trillion USA dollars in the first quarter. However, the Fed says it would start reducing its holdings of bonds and other securities in this year, which is a sign of its confidence in US economy's growth and strengthening job market.

"The economy is doing well, is showing resilience", Yellen said at a quarterly news conference.

The dollar strengthened slightly after the announcement while United States stock markets took it in their stride, though there was some further unrelated softening of key tech stocks such as Amazon, Facebook and Google.

It seems the Fed is no longer data dependent as before and wants to carry on with the normalization process despite weakness seen in some economic releases.

Not all observers agree though and plenty are sticking with the view that a further Fed rate hike is inevitable later this year.

In a separate report, the department announced that USA import prices declined 0.3 percent in May after increasing 0.2 percent in April, while the price index for US exports declined 0.7 percent in May following a 0.2-percent advance in April.

"Asset sales would be deferred, but their replacement-rate on the balance sheet tapered increasingly every three months". She said that no action was taken during this meeting, as the FOMC members wanted to provide advance warning before taking such a step.

Stupnytska added that while the Fed would be "under little pressure to tighten policy in the next few months" ultimately the tightening effect could come from the balance sheet reinvestment programme. This is thought to tighten financial conditions, providing the Fed with less scope for rate hikes in 2018.

"I think it was all expected, the U.S. economy is doing pretty good, we're pretty close to full employment and inflation is pretty close to the target".

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