Stocks march on as Fed rate hike looms, dollar steady

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

Leila Butt, a senior economist at Prudential Portfolio Management Group, said: "As anticipated, the Fed has hiked rates for the second time in 2017 and we'd expect it to do so again before the year is out, as it also begins to shrink its balance sheet". The Hang Seng in Hong Kong dropped 1.2 percent to 25,565.34, but Shanghai's Composite index rose 0.1 percent lower to 3,132.49.

In its statement following a two-day meeting, the Fed's policy-setting committee indicated the economy had been expanding moderately, the labor market continued to strengthen and a recent softening in inflation was seen as transitory. They forecast USA economic growth of 2.2 percent in 2017, an increase from the previous projection in March.

Joseph Gagnon, senior fellow at the Peterson Institute for International Economics and former visiting associate director of the Division of Monetary Affairs at the US Federal Reserve Board, told Radio Sputnik that rates will remain relatively low for some time despite the rate hike. Fed expected USA unemployment to end the year at 4.3 per cent instead of its previous 4.5 per cent forecast.

The US economy is growing at a 3.2% annualized pace in Q-2 of Y 2017 based on data on May retail sales and consumer prices, the Atlanta Federal Reserve's most recent GDP Now forecast model showed.

The Fed's characterization of the state of the economy as "slightly softer" and additional details regarding the unwind in the balance sheet likely took pressure off the central bank to tighten, Specchia added.

Since the financial crisis as the Fed has bought government and mortgage-backed bonds to underpin the American economy, but policymakers have confirmed that they will start to reduce reinvesment of bonds as they mature.

Meanwhile, the rate of inflation over the past 12 months has slowed to 1.9% in May from 2.7% just in February.

Previously, Head of the Central Bank of Azerbaijan (CBA) Elman Rustamov said that increase in the key interest rate of the U.S. Federal Reserve System will not have a strong impact on the financial market of Azerbaijan and the manat rate. Inflation is expected to remain below 2 percent in the near term but reaches targeted 2 percent over the medium term.

However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

One FOMC member, Minneapolis Federal Reserve Bank President Neel Kashkari, dissented from the decision, preferring to keep policy on hold for now.

The FED rate is one of the most effective and at the same time unsafe levers for raising the American economy.

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