It’s whether the central bank will stick with an original projection of three hikes this year, which might take rates to a range of 1.25% to 1.5%.
The central bank on Wednesday raised rates by a quarter point to 0.75-1.00 percent, responding to the continued strength in the labor market and a pick up in inflation. “Near-term risks to the economic outlook appear roughly balanced”.
Because the increase is widely expected, a key point of focus will be Fed Chair Janet Yellen’s subsequent news conference, which investors will watch for hints on how quickly rates might be raised in the future. On Thursday, the Bank of Japan held its policy steady as expected and maintained a pledge to cap long-term interest rates around zero. This is the time to retreat from the heightened fear of faster policy tightening.
They made several changes to their language on inflation. Thus the market is relatively indifferent as to whether the Fed raises rates or not. “The committee expects that economic condition will evolve in a manner that will warrant gradual increases in the federal funds rate”.
Policymakers noted that inflation was now “close” to the central bank’s 2 percent target, and that business investment had “firmed somewhat” after months of weakness.
However, strong USA economic growth will inevitably push the Fed to ratchet up rates, pressuring gold, said ICBC’s Kendall, who sees gold averaging $1,140 in the second quarter.
The rate hike should “have little to no influence on the 15- and 30-year mortgage rates”, according to Charleston Trident Association of Realtors President Dave Sansom, chief operating officer with Carolina One Real Estate. He was the only contrary vote on the committee.
Spot gold was up 0.1 per cent at $1,227.11 per ounce by 0308 GMT, after hitting its highest since March 6 in the previous session at $1,233.13.
The euro climbed to a five-week high of $1.0746 on Thursday, after surging 1.2 per cent overnight.
Officials projected unemployment to finish this year at 4.5 percent, unchanged from the December forecast. For example, while rates are still low in the US, they are even lower in Japan and numerous countries in Europe, including France, Germany and Switzerland. The jobless rate was 4.7 percent in February.
It may be unusual to think of an economy growing just 2 percent a year – well the below the nation’s 3.3 percent historic average – as overheating.
Businesses have been the benefactors of that growth, Yellen says.
The New Zealand dollar slipped 0.5 per cent to $0.7006 after indicators showed the local economy expanded less than forecast in the final quarter of 2016.
A U.S. rate hike at this point would serve as a signal that the financial markets are on track to more normal conditions after a prolonged period of abnormally low rates following the Global Financial Crisis. We believe investors with broadly diversified portfolios of domestic and global equities, fixed income securities across the credit and maturity spectrum and cash should be well-positioned for all types of market developments over the long term.