US Federal Reserve Raises Interest Rates Despite Lower Inflation

June 16 (BusinessDesk) - The New Zealand dollar declined against the pound after the Bank of England policy committee kept rates on hold but with a split vote, while it fell against the USA dollar in the wake of yesterday Federal Reserve statement that kept intact plans for another rate hike this year. The unemployment rate is now at 4.3 percent, at - or even below - the level long considered to be full employment. And Bank of America will earn approximately $150 million more each quarter for every 25-basis-point increase in rates. While inflation has moderated in recent months, the Fed seems to be attributing this mostly to one-off factors.

This focus on balance sheet reduction led economists at Wall Street's top firms to push out their outlook on the next rate hike to December from September.

The larger jumbo 30-year fixed nosed up to 4.00 percent, and the average 15-year fixed mortgage rate settled at 3.25 percent. If the recovery stays moderate in pace with little associated wage inflation it will be more hard for the Fed to take rates much higher in a hurry. You can think of this rate increase as the Fed's seal of approval on the economy's progress.

US Target Federal Funds Rate data by YCharts. It is also a bit concerned that commercial banks will still want to deposit substantial reserves at the Fed and will need to have a policy which handles their demands.

Experts said that the State Bank of Việt Nam's policies on exchange rates helped the market avoid external shocks, adding that the Fed rate hikes would not have significant impacts on VNĐ/USD exchange rates. However, the Fed says it would start reducing its holdings of bonds and other securities in this year, which is a sign of its confidence in USA economy's growth and strengthening job market. More interestingly, policy makers set out a detailed plan to shrink the $4.5 trillion balance sheet by gradually reducing security holdings. As expected, policymakers voted to keep the Bank's short-term interest rates at -0.1% and the yield on the 10-year Japanese government bond around zero. It's probably the Fed's view that economic slowdown in recent months won't last, and the overall uptrend will be sustained. That dynamic spurs economic growth. "The Fed is optimistic that it will continue raising rates, and that is likely to lend the Dollars support should they be correct in that assessment". Mortgage rates will be higher, as will credit card interest rates and auto loans.

The decision of the FED is not a fundamental factor affecting the manat rate against to the United States dollar, according to him.

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