Rate Rises Again in Second of 3 Expected Hikes

May inflation rate of 2.9% highest for nearly four years

For the second rate hike in a row, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, was the lone dissenter among the nine members of the Federal Open Market Committee, the group of Fed board members who vote on setting the federal funds rates.

It said the rate increase and accompanying comments bolster our view that the fed funds rate is likely to normalise at 3.5% by 2020, and USA 10-year bond yields will rise back above 4%.

In a statement on its website yesterday, Fitch said the Fed also announced that it expects to start phasing out full balance sheet reinvestment in 2017 and provided details on the modalities of doing so. "The level will reflect the banking system's demand for reserve balances and the Committee's decisions about how to implement monetary policy most efficiently and effectively in the future". "Overall, we continue to expect that the economy will expand at a moderate pace over the next few years".

U.S. Bancorp was the first major bank that announced Wednesday that it would increase its prime lending rate to 4.25 percent from 4 percent, effective Thursday. It was only the third hike since Fed chair Janet Yellen had ended the flatline interest rate policy that followed the severe financial crisis which broke out 10 years ago.

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NOGUCHI: Greg McBride, an analyst with consumer financial site bankrate.com, says taken together, the Fed's moves have caused home equity and auto loan rates to increase about 1 percent over the last two years. Traders now see June next year as the earliest meeting at which the USA central bank will next lift its target for overnight borrowing costs, based on fed funds futures traded at CME Group as analyzed by Reuters.

The key rate, though not directly tied to mortgage rates, exerts influence in housing. Starting later this year, the Federal Reserve will allow $10 billion per month in Treasury securities, agency debt and mortgage-backed securities to not be reinvested. Five Fed officials projected raising rates three or more times this year.

NOGUCHI: Fed officials raised interest rates today despite the fact that the latest readings on inflation show that it is not picking up steam.

New Zealand's economy grew 0.5 per cent in the three months to March, lower than the 0.7 per cent growth forecast in a Reuters poll of economists and well below the central bank's forecast for 0.9 per cent growth. It forecast that prices will rise just 1.6 per cent this year, down from a March forecast of 1.9 per cent. By contrast, "doves" favour the direction taken under Yellen, favouring relatively low rates to maximize employment.

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