Fed Weighs in on Interest Rates, Inflation

Fed Weighs in on Interest Rates, Inflation

In a statement following the end of a two-day policy meeting, the Fed said inflation had "moved close" to its target and that "on a 12-month basis is expected to run near the Committee's symmetric 2 percent objective over the medium term".

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. The kiwi traded at 58.50 euro cents from 58.42 cents.

The Fed's commentary is unlikely to change investor expectations that policy makers will raise interest rates for the second time this year when they re-convene in June.

Gold rose, then fell into the red in after hours trading and oil edged higher and the Aussie dollar traded at just over 75 United States cents.

E-Mini futures for the S&P 500 crept 0.3 per cent higher, with overnight results from Kraft Heinz, Tesla and Spotify in focus. It downplayed a recent slowdown in economic and job growth, saying the activity had been expanding at a moderate rate and job gains, on average, had been strong in recent months. "That's negative for the dollar because ... the dollar needs higher real rates to essentially pull in the funding from the rest of the world".

"The market has priced the Fed for this year", David Riley, chief investment strategist at BlueBay Asset Management, said in interview with Bloomberg's Anna Edwards.

Hong Kong's Hang Seng index ended 1.3 per cent lower, but Chinese shares bucked the trend.

The Fed hinted that more rate hikes are coming later this year if the economy continues to strengthen.

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U.S. investors fretted about the acknowledgement of rising inflation.

Bond investors are signaling that they expect a pickup in US inflation, having bid up the yield on the 10-year Treasury note last week above 3 percent before the yield settled just below that.

"The Fed sees little reason to be concerned with inflation marginally above its 2.0 per cent target, particularly after such a long period of underperformance", Clarke said.

The Fed also said risks to the economic outlook appear roughly balanced and reiterated its expectation that economic conditions will evolve in a manner that will warrant further gradual increases in interest rates.

Westpac, like the market, expects two more hikes this year.

USA government bond prices inched higher Wednesday after the Treasury Department outlined plans to issue a wave of new debt to finance the federal government's growing borrowing needs.

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. Yields rise as bond prices fall.

Spot gold was up 0.4 per cent at $1,310.48 an ounce.

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