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FOMC Preview: One Hike Today, One More Later In 2017

27 June 2017

The median estimate of the long-run neutral rate, which is seen as the level of monetary policy that neither boosts nor slows the economy, was unchanged at 3.0 percent. 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 USA economy's growth and strengthening job market.

Fed officials now expect the US unemployment rate to end the year at 4.3 percent, down from the 4.5 percent they predicted in March.

The Federal Reserve raised interest rates for the third time since December, something investors had widely expected based on the Fed's recent statements.

The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate and the rate to remain below longer run levels.

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The most interesting thing about this meeting is that it comes at a time when the United States dollars has endured a less than stellar jobs report (some decried it as disastrous, ) and with inflation possibly slowing as forecasts for last month's CPI see it dipping from 2.2% back to 2.0%.

The Federal Reserve signaled confidence in the strong economy Wednesday with its second interest rate hike of 2017, bringing its benchmark rate up a quarter-point to push it over 1% for the first time since the 2008 financial crisis. After three rounds of so-called quantitative easing the Fed acquired $4.5tn worth of bonds, including $1.8tn in mortgage securities.

"I think it was all expected, the USA economy is doing pretty good, we're pretty close to full employment and inflation is pretty close to the target". Only Neel Kashkari, president of the Minneapolis Fed bank, opposed the increase.

In a statement it said: "The committee now expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated".

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Despite another interest rate hike by the Federal Reserve, mortgage rates are hovering at the lowest point since mid-November and are little changed from where they were 18 months ago, when the Fed started boosting interest rates.

The gold price in the global market saw huge fluctuations after the Fed rate hikes. After a late tumble in technology stocks, the Nasdaq composite lost 0.4 percent, to 6,194.89. Some gains are expected on Wall Street later, with the futures for both the Dow and S&P 500 up 0.1 percent.

The WSJ Dollar Index was recently up 0.6% at 88.63, making dollar-denominated metals more expensive to other currency holders.

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