Wall Street dips after Federal Reserve raises rates

Federal Reserve hikes interest rate, citing

Federal Reserve hikes interest rate, citing "strong" economy

The Federal Reserve was widely expected to raise rates due to strong economic growth over 2018.

Saudi Arabia's central bank said it was raising its reverse repo rate by 25 bps to 2.25 per cent, and its repo rate by the same margin to 2.75 per cent. Bahrain's central bank raised its interest rate on its one-week deposit facility to 2.5 per cent from 2.25 per cent. Kuwait said it is keeping its key discount rate unchanged at 3 per cent. "I'm not happy about that", Trump told reporters during a press conference in NY. That may be a signal that the Fed believes interest rates are finally at a neutral level, meaning they neither stimulate nor hinder the economy.

The latest 0.25 percentage point increase, approved by a unanimous vote, brings the target of the central bank's benchmark federal funds rate to between 2% and 2.25%.

Central bankers raised expectations for a fourth rate hike in December, with a majority now in favor of such a move. Mr Trump told CNBC in July he was "not happy about" the Fed raising borrowing costs.

Federal Reserve chair Jerome Powell will have more to say on the bank's line of thinking at a news conference at 2:30 p.m. ET on Wednesday.

The central bank stuck with its previous forecast for a fourth rate increase before year's end and for three more hikes in 2019. The unemployment rate in the United States reached 3.9 per cent in August, an 18-year low, while annual inflation reached 2.7 per cent in the same month. The president does have influence in appointing governors, though Trump's appointments including Powell and Vice Chairman Richard Clarida have been policy centrists who have backed gradual rate hikes.

US Fed raises benchmark interest rate to 2.25-pct
It was the third rate hike by the US Fed this year and the eighth such move since December 2015. The Fed would normally respond to weaker growth by cutting interest rates.

Does not change the description of the economy; repeats that jobs gains have been strong and household spending and business fixed investment have grown strongly.

In his news conference, Powell said he had yet to see evidence that the administration's tariffs have raised prices for many consumers. "Are they seeing more fiscal policy showing through to aggregate demand than they thought?" said William English, a professor at Yale and former director of the Fed's Division of Monetary Affairs. The Fed opted not to increase rates in August, which gave watchers another reason to expect one this month. The Fed seeks to slow the economy when it reaches full employment to prevent a tight job market from raising inflation too high.

Forex today was a mixed bag for the dollar once again whereby the market struggled for direction over a confusion of what removing accommodation means with respect to the Fed's change up in the FOMC statement overnight.

David Kohl, the chief currency economist at Julius Baer said the bank in the coming year expects Fed to continue raising rates, despite the escalation in trade conflict. Absent more rate increases, it is easy to imagine the unemployment rate falling through 3%, and for inflation and financial-market excesses to start causing serious problems.

Some economists are urging the Fed to be even more patient with hiking because short-term rates could soon tip over longer-term ones, which are normally higher. The European Central Bank said it will maintain its policy rate of minus 0.4 per cent at least through next summer, while the Bank of Japan is set to stick with its current settings until 2020.

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