Federal Reserve Moves Interest Rates Higher


The decision lifted the USA central bank's benchmark lending rate by a quarter percentage point to a target range of 1.00 percent to 1.25 percent as it proceeds with its first tightening cycle in more than a decade. These rates are well below the Trump administration growth goals of 3 percent a year.

"The Fed sounded hawkish, willing to look past the weakness in inflation and reiterating the need to normalize policy", said a BofA Merrill Lynch Global Research report after the release.

The VNĐ/USD exchange rates saw little changes this morning although the US Federal Reserve (Fed) raised interest rates on Wednesday on the confidence in a growing economy and strengthening job market in the world's biggest economy. Overall, interest rates remain very low in comparison to previously.

The announced phased reduction of the Fed's bond purchases would start with $6 billion a month from Treasuries and $4 billion a month from mortgage bonds, increasing each quarter until the Fed's balance sheet is being reduced by a total of $50 billion a month or $600 billion per year. Inflation was expected to be at 1.7 percent by the end of this year, down from the 1.9 percent previously forecast.

It means the United States central bank is scaling back its support for the economy as it continues to recover and grow. Neel Kashkari dissented the rate hike.

Meanwhile, in view of stable economic conditions, the Fed plans to reduce its 4.5-trillion-U.S. -dollar balance sheet later this year and unveiled a detailed plan to trim its bond holdings. The move, which brings the range to between 1% and 1.25%, had been seen as nearly a certainty, and investors were more intrigued by Fed chief Janet Yellen's plan to start rolling back the $4.5 trillion balance sheet, which it packed with government bonds and mortgage-backed securities in an effort to offset the crisis, the Street reports.

Rising interest rates will eventually affect millions in the US from buyers of home to those with credit cards to those saving money.

The Fed has now raised rates four times as part of a normalization of monetary policy that began in December 2015.

Under this scenario, also high-yielding currencies (Emerging Markets or EM currencies) are also prone for depreciating against the dollar (G-10 FX carry index).