USA interest rate rise in June '100% certain' after Fed delays

Javier Stokes
May 3, 2018

Analysts said the Fed's statement Wednesday made it even clearer that it intends to resume raising rates at its next meeting in mid-June.

The Stoxx Europe 600 Index fell 0.2 per cent as of 8.06am London time, headed for the largest fall in more than a week.

On Monday the government reported that inflation as measured by the Fed's preferred PCE price index rose to a 12-month rate of 2% for the first time in a year.

The Japanese yen increased 0.1 per cent to 109.73 per United States dollar. The kiwi traded at 58.50 euro cents from 58.42 cents.

Copper climbed 0.1 per cent to US$3.07 a pound.

Higher interest rates and inflation also could squeeze earnings in coming quarters.

"The market will have to get used to the fact that in order to prevent an economic overheating interest rates in the USA will continue to rise", they said, predicting that rate differentials between countries would have an increased bearing on currencies and could cement euro/dollar at around $1.20.

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"The risk at the moment is that the increasing uncertainty could create ambiguity in executives' heads, it makes corporate decision-making more hard and then (leads to) a decline in investment", Alastair George, chief investment strategist at Edison Investment Research, said.

The MSCI Emerging Market Index decreased 0.7 per cent to the lowest in more than a week. The central bank's policymaking committee also noted that "overall inflation and inflation for items other than food and energy have moved close to 2 percent". It omitted earlier language that the economy has strengthened in recent months. The Fed gradually is tightening credit to control inflation against the backdrop of a tight job market, a resilient economy and a pickup in consumer prices. The FOMC considers 2 percent the ideal inflation mark, because it's typically a key indicator of strong economic health.

As expected, the Federal Reserve kept interest rates unchanged within a range between 1.50% and 1.75%.

Investors won't get much of a reprieve from Fed rate-hike concerns. The central bank is meeting this week as its board is undergoing a makeover, with a raft of new appointees by President Donald Trump who appear generally supportive of the Fed's cautious approach to rates since the Great Recession ended.

The dollar eased 0.1 percent to 109.68 yen JPY=, inching away from a three-month peak of 110.05 yen set on Wednesday.

In the Treasury market, yields dipped slightly as a quarterly refunding programme of $73 billion came in short of expectations, reducing the pressure on prices from the torrent of supply. June gold futures last traded at $1,311.50 an ounce, up 0.36% on the day.

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