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Mortgage Rates Wednesday, June 14: Lower Prior to Expected Fed Rate Hike
June 26 2017, 12:10 | Clarence Walton
Fed expected to raise rates today
Federal Reserve Board Chairwoman Janet Yellen holds a news conference after the Fed released its monetary policy decisions in Washington, U.S., June 14, 2017.
Federal Reserve policymakers on Wednesday raised a key interest rate for the third time in six months, a move that will push it above 1 percent for the first time since the 2008 financial crisis.
Most of the 16 Fed officials on the policy-making committee still expect to raise the Fed's benchmark rate at least one more time this year, according to a compilation of their economic forecasts that the Fed released on Wednesday.
However, the focus of the market participants' will be on indications on the occurrence of further increases and how the Fed decides to unroll its huge Treasury bond stockpile over the years ahead.
The Fed hiked interest rates Wednesday by a quarter point and spelled out how it hopes to begin winding down its balance sheet this year.
The Federal Open Market Commitee voted to raise fed funds to between 1% and 1.25% and will start "gradual" shrinking of its USD4.5 trillion balance sheet "this year".
She added that the balance sheet normalization could be put into effect "relatively soon".
The Fed said the initial cap for Treasuries would be set at $6 billion per month initially and increase by $6 billion every three months over a 12-month period until it reached $30 billion per month in reductions to its holdings.
The Fed has also expressed an interest in reducing its portfolio of Treasurys and mortgage-backed securities.
The expectation of USA bank is that the dollar should gain 2% over the next few weeks against major currencies. On the other hand, against a basket of major currencies dollar steadied.
The decision, widely expected by financial markets, took the USA central bank's main rate to a target range of 1% to 1.25% and represented its fourth upwards move since December 2015 when it declared the financial crisis hangover at an end. Weakening retail sales and inflation pressures easing might impact additional hikes for the remainder of the year, especially if Fed officials view them as non-transitory. Wall Street now only sees around three more rate hikes, including Wednesday's, through the end of 2019 pushing rates to a high of 1.75 percent.
In March, the Fed had already moved the benchmark up 0.25 points to between 0.75 and 1 percent. Inflation is expected to have slowed modestly to 2% in May from 2.2%. With the U.S. economy performing better in the second quarter, there's a strong likelihood that the Fed will not moderate its rate hike projections, which is good news for the dollar.
Ahead of the Rate announcement we've see United States inflation and retail sales come in weaker than expected and this throws up a curved ball for the Fed. Market analysts expect consumer prices to ease up 0.1%, while core inflation is forecast to increase 0.2%.
"The risk is that the Fed is too complacent on inflation and more than just transitory factors are keeping it from rising, and that the Fed is too confident about labor market improvement transitioning to wages and inflation", said Michael Gapen, chief US economist at Barclays Plc in NY.
"And though that doesn't paint a particularly encouraging picture of the United States economy, neither figure is bad enough to deter the Fed from raising rates, the likelihood of which now stands at 95.8% according to the CME Group". Only Neel Kashkari, president of the Minneapolis Fed bank, opposed the increase.