Fed Raises Interest Rate by a quarter point

A weak report on retail sales sent bond yields lower and high-dividend stocks like utilities and real estate companies higher

TOKYO (AP) — Shares fell in Asia on Thursday after the U.S. Federal Reserve raised interest rates, as expected.

All of this negative data is causing growing speculation that the Fed. may have got it wrong and the economic slowdown is not "transitory" as they have claimed on numerous occasions recently. The yield on the 10-year Treasury note was 2.12 percent, the same as shortly before the statement came out.

At the current average 30-year fixed mortgage rate of 4.02 percent, the monthly payment for a $200,000 loan is $957.14.

The Standard & Poor's 500 index, the benchmark that professional investors follow, likewise wasn't changed much either.

The shekel continues strengthening against the dollar and against the euro today despite last night's decision by the US Federal Reserve to raise interest rates.

Eighteen of all primary dealers surveyed said the Fed would announce the start of its balance sheet normalization at its September 19-20 policy meeting.

The precious metal often drops when rates rise, as some investors back away from the metal because it doesn't pay interest. Annual inflation is running at 1.7 percent. "Notably, however, the Fed's inflation outlook (was) lowered, reflecting a more moderated outlook that is expected to invite more scrutiny on their upcoming decisions". By the end of 2018, with inflation projected to be very close to the 2% target, and with the economy predicted to be at or above full employment, the Fed foresees a fed funds rate of about 2.0%, consistent with PIMCO's New Neutral thesis.

The Federal Reserve chose to raise the rate despite revising its projections for inflation down to 1.6 percent for this year, less than its target of two percent.

Crude oil prices fell sharply, although due to unexpectedly large buildup in U.S. gasoline stocks. Bob Frick, corporate economist at Navy Federal Credit Union, describes this hike as "another step toward normalizing short-term interest rates and to signal that the economy is doing fine". And the Central Bank voted to raise its key rate target to the range of 1% to 1.255.

The Federal Reserve, for its part, seems to believe that the economy is strong enough for money to be more expensive, including real estate financing.

The implementation of its proposed balance sheet normalisation programme – a gradual reduction in Fed's holding of securities - this year, would also depend on how the economy evolves, it added.

The U.S. central bank also gave a first clear outline of plans to shed its $4.5 trillion bond portfolio built up in three rounds of quantitative easing stimulus. The CME FedWatch Tool indicates a market estimate of a rate hike in March.

Fed officials are wrapping up their two-day June meeting.

"The U.S.is good. More important, we see the worldwide markets finally beginning a six- to eight-year turn", said Christine Armstrong, executive director at Morgan Stanley in Boston. There was only one rate increase in both 2015 and 2016. Financial markets will take it in stride. USA stock markets were relatively flat through afternoon trading, while the yields on 10-year Treasury notes had fallen to 2.11 percent.

Stocks rose on Wednesday, but worries about stretched valuations and caution before a near-certain rate hike by the U.S. Federal Reserve kept their gains in check, while the dollar steadied against a basket of major currencies. The S&P energy index lost 0.7 percent. It is roughly flat against the pound, at $1.2758.

"In view of realised and expected labour market conditions and inflation, the FOMC (Federal Open Market Committee) chose to raise the target range for the federal funds rate to 1 to 1.25 per cent", the American central bank said in a statement after concluding its two-day monetary policy meeting.

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