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How Fed hike will affect US consumers and overseas economies

How Fed hike will affect US consumers and overseas economies”

The FOMC also forecast that the USA economy would grow 2.2 percent in 2017, a rise from initial projections from back in March.

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 targets for appropriate federal funds rates by Federal Open Market Committee participants are plotted in a chart that has come to be known as the "dot plot". "I would think that at some point the market is going to be pricing in even greater risks that the Fed might be moving too quickly", said Mark Cabana, head of USA short rates strategy at Bank of America Merrill Lynch in NY. In a policy statement, committee members said that economic activity "has been rising moderately".

The Fed also announced it will sell off some of the bonds and other securities it's holding. There was only one rate increase in both 2015 and 2016.

Neil Wilson, senior market analyst at ETX Capital, said: "The Fed stuck to its guns, raising rates by a quarter point and calling for another hike this year, in spite of some pretty awful inflation earlier that has the market doubting the central bank's willingness and ability to tighten again in the near-term".

The Fed says it expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated. Despite that, the Fed's favorite measure of price pressures, excluding food and energy components, rose just 1.5 percent in the 12 months through April, down from 1.8 percent in February. The Federal Reserve is hiking a key interest rate for the second time this year and is planning to reduce the size of its $4.5 trillion balance sheet as well.

"A solid rate of growth remains well above expectations".

Fed officials have concluded that the economy, now entering its ninth year of expansion, no longer needs the ultra-low borrowing rates they supplied beginning in the Great Recession. "Overall, we continue to expect that the economy will expand at a moderate pace over the next few years".

Though it assesses the overall economy, the Fed's mandates are to maximize employment and stabilize prices. Before the release of Wednesday's statement, traders in future markets placed only a 37% probability of one more rate increase this year, according to CME Group, and an 18% probability of a second quarter-point increase by mid-2018.

Data released earlier today showed that, on a year-over-year basis, the core version of consumer price inflation slowed for the fourth month in a row, to 1.7% in May.



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