Singapore market dips after Fed rate increase

March 24 08:29 2018

New Federal Reserve chairman Jerome Powell has hiked interest rates from 1.5pc to 1.75pc as the U.S. economy has continued to strengthen.

In its quarterly forecasts, Fed officials projected the benchmark interest rate would end this year at 2.1% after two more hikes, unchanged from the December forecast, but would rise to 2.9% at the close of 2019, signalling three possible hikes that year. The Russell 2000 index of smaller companies gained 8.90 points, or 0.6 percent, to 1,579.30.

U.S. Trade Representative Robert Lighthizer said on Wednesday the tariffs would target China’s high-technology sector and could also include restrictions on Chinese investment in the United States.

Wednesday’s rate hike is the sixth time the Fed has lifted interest rates since the economy collapsed in 2008.

Still, Powell told reporters that even with rising interest rates, the world’s largest economy is “healthier than it has been since before the financial crisis”.

“This is by all means a “hopeful” Fed that’s shifting away from the data-dependent approach that Janet Yellen got us used to”.

Stocks traded higher early in the day and jumped after the Fed announced its decision. The yield on the 10-year Treasury note declined to 2.88 percent from 2.90 percent Tuesday. Kaplan and Bostic each said they still expect three hikes will be warranted. Citing improvement in employment and economic operations as reasons, this is the third interest hike imposed by the US Federal Reserve in the current fiscal year. The federal funds rate, which the Fed determines directly, sets the rate at which banks lend money to one another. Powell did not “expect changes in trade policy to have any effect”, though following conversations with business leaders, FOMC members reported that trade policy was “a concern going forward” for growth.

The hike was widely expected, and investors will turn to a press conference from new Fed Chairman Jerome Powell for signals on the number of hikes planned for the year. It will also be interesting to see how the Fed’s communication evolves under Powell.

“The economic outlook has strengthened in recent months”, the policy-setting FOMC stated on Wednesday in Washington. Those higher estimates may reflect the expected impact of the additional government spending. The reason for this widely expected rate hike is historically low unemployment rate in the U.S. and the confidence in the growth of the USA economy, which is picking up strongly. Santos and Woodside Petroleum rose 1-2 percent as oil prices rallied on dollar weakness as well as data showing a surprise draw on US crude inventories. Trillions of dollars worth of debt and interest rate derivatives are anchored to Libor.

The financial markets have been edgy for weeks, and Powell’s back-and-forth comments have been only one factor. “Participants projections of the appropriate path for the federal funds rate reflect our gradual approach”, he added. But subsequent reports on wages and inflation have been milder, and the markets appear to have stabilized.

A portion of the voting membership of the committee rotates every year among the Fed’s regional bank presidents. The US economy grew at an annualised rate of more than 3% during some quarters past year, while the unemployment rate is hovering at 4.1% – the lowest since 2000.

Jerome Powell

Singapore market dips after Fed rate increase
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