While you were sleeping: US rate hike still in cards

Thursday 18th June 2015

Wall Street climbed after US Federal Reserve policy makers said they see the economy continuing to gather steam and expect to raise the central bank’s key interest rate this year.

“An increase is certainly possible this year,” Chair Janet Yellen told a press conference in Washington after a meeting of the Federal Open Market Committee, at which it kept its benchmark rate unchanged.

Fifteen of the 17 FOMC members said they believed it would be appropriate to lift rates in 2015, while two preferred to wait until 2016.

Since the previous Fed meeting in April, "economic activity has been expanding moderately after having changed little during the first quarter," according to an FOMC statement. “The pace of job gains picked up while the unemployment rate remained steady.”

Fed officials maintained their projection that the benchmark rate would rise to 0.625 percent in 2015, while dropping it to 1.625 percent next year -- lower than their March median forecast of 1.875 percent, according to Bloomberg.

"The Fed is talking about the labour market tightening somewhat, which seems to be a hint that it is a step closer to raising rates,” Nick Kalivas, senior equity product strategist at Invesco PowerShares in Downers Grove, Illinois. “At the same time, it seems like there was a notching down of the magnitude of rate hike expectations.”

Policy makers now expect US gross domestic product to grow between 1.8 percent and 2.0 percent in 2015, down from a March projection of between 2.3 percent and 2.7 percent. For 2016, the range changed to between 2.4 percent and 2.7 percent, from between 2.3 percent and 2.7 percent in March.

“They said the economy is back on track, but there’s no hint at all of an immediate tightening,” John Canally, chief economic strategist at LPL Financial Corp, told Bloomberg. “It looks like there’s a shallower rate hike path for 2016 and 2017. That should be supportive of risk assets.”

Futures contracts show that traders still see December as the first Fed meeting when a rate hike is more likely than not, based on CME FedWatch, Reuters reported. Traders see a 66 percent chance of a December hike, and a 49 percent chance of an October hike.

Wall Street moved higher. In late trading in New York, the Dow Jones Industrial Average rose 0.42 percent, the Standard & Poor’s 500 Index added 0.11 percent, while he Nasdaq Composite Index climbed 0.14 percent.

Gains in shares of American Express and those of Intel, last trading 1.3 percent and 0.9 percent higher respectively, led the Dow higher.

In Europe, the Stoxx 600 Index ended the day with a 0.5 percent drop from the previous close. The UK’s FTSE 100 Index fell 0.4 percent, Germany’s DAX declined 0.6 percent, while France’s CAC 40 Index slid 1 percent.

Greek Prime Minister Alexis Tsipras said his government was prepared to assume responsibility for rejecting the latest proposal for debt relief for the nation from its international creditors, as he ratchets pressure on those creditors and his euro zone peers to cut Greece some fiscal slack.

(BusinessDesk)

BusinessDesk.co.nz

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