U.S. dollar rises on weaker euro, Fed policy; stocks gain

U.S. dollar rises on weaker euro, Fed policy; stocks gain

The Federal Reserve on Wednesday is widely expected to raise interest rates, continuing to pull back from its decade-long effort to stimulate economic growth.

Powell says that businesses have told Fed officials that the tariffs have led to concerns about supply chains being disrupted and raw materials costing more. Unfortunately they just raised interest rates because we are doing so well.

"The market has suddenly found itself in the doldrums with the Fed's rate hike out of the way and with impact from trade tension woes receding", said Koji Fukaya, president of FPG Securities in Tokyo.

I interpreted the Fed as dovish because it dropped the word "accommodative" from its monetary policy statement and Federal Chairman Powell downplayed the fear of inflation spiking to the upside.

In response to the financial crisis the Fed grew its balance sheet from about US$900 billion in 2008 to about US$4.5 trillion at its peak previous year by buying US Treasury bonds and mortgage-backed securities to keep rates ultra-low and inject liquidity into the financial system.

Inflation was forecast at 2% over the next three years, while the unemployment rate is expected to fall to 3.5% in 2019 and remain the same till 2020.

China's central bank is expected to keep borrowing costs on hold through the end of this year despite further Federal Reserve rate hikes from this week, as economic growth slows and the trade war with the US gets worse.

"There is no need to follow", said Meng Xiangjuan, chief bond analyst at SWS Research Co.in Shanghai, adding that the stabilizing yuan-dollar exchange rate also reduces the pressure on the PBOC.

If the Fed had left in the reference to accommodative, it would have been a strong sign about more future hikes in order to get to neutral.

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In an interview with MarketWatch, Alfonso Esparza, senior currency analyst at Oanda, said that the rate hike "has already been priced in, but gold traders will be on the lookout for insights on the economic projections and Chair Jerome Powell's news conference". Korea's capital market has stayed relatively stable even after the Fed's rate hike in March that made the US rate higher than Korea's for the first time in a decade, but the capital market risk is growing. If inflation does tilt up and moves decidedly above 2%, the Fed will be required to raise rates beyond its estimate of (inflation-adjusted) r*.

Private loans are based on the London Interbank Offered Rate, or LIBOR, which usually moves in the same direction as the federal funds rate (the rate the Fed controls with its hikes).

The increasing rates have also faced attacks from US President Donald Trump, who has broken with tradition by commenting on monetary policy. I'm anxious about the fact that they seem to like raising interest rates.

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 central bank is mandated by Congress to work toward the goals of stable prices and maximum employment, and its structure is created to insulate decision-making from politics.

Hopes Fed will be marking up estimates of potential United States growth. Indeed, should growth continue to run at four per cent-plus it would probably raise rates more assertively. For the first nine years of the economic expansion, annual GDP growth averaged only around 2.2 percent.

Mr Powell said the U.S. economy has successfully absorbed the increases so far.

However, while the USA dollar has found renewed strength, Callow says it may not remain that way for long.

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