Fed hikes US in­ter­est rate by 0.25%

The Star Early Edition - - BUSINESS REPORT -

THE US Fed­eral Re­serve raised in­ter­est rates yes­ter­day for the sec­ond time in three months, cit­ing con­tin­ued eco­nomic growth and job mar­ket strength.

It also an­nounced that it would be­gin cut­ting its hold­ings of bonds and other se­cu­ri­ties this year.

The de­ci­sion lifted the US cen­tral bank’s bench­mark lend­ing rate by a quar­ter per­cent­age point to a tar­get range of 1 per­cent to 1.25 per­cent as it pro­ceeds with its first tight­en­ing cy­cle in more than a decade.

In its state­ment fol­low­ing a two-day meet­ing, the Fed’s pol­icy-set­ting com­mit­tee in­di­cated the econ­omy had been ex­pand­ing mod­er­ately, the labour mar­ket con­tin­ued to strengthen and a re­cent soft­en­ing in in­fla­tion was seen as tran­si­tory.

The Fed gave a clear out­line on its plan to re­duce its $4.2 tril­lion (R52.9 tril­lion) port­fo­lio of Trea­sury bonds and mort­gage-backed se­cu­ri­ties, most of which were pur­chased in the wake of the 2007-2009 fi­nan­cial cri­sis and re­ces­sion.

“The com­mit­tee cur­rently ex­pects to be­gin im­ple­ment­ing a bal­ancesheet nor­mal­i­sa­tion pro­gramme this year, pro­vided the econ­omy evolves broadly as an­tic­i­pated,” the Fed said. Ac­cord­ing to an ad­den­dum re­leased with the pol­icy state­ment, the Fed an­tic­i­pates that the bal­ance-sheet re­duc­tion plan would fea­ture halt­ing rein­vest­ments of ever-larger amounts of ma­tur­ing se­cu­ri­ties.

The Fed sees the cap for Trea­sury se­cu­ri­ties to be $6 bil­lion per month ini­tially, in­creas­ing in $6bn in­cre­ments at three­month in­ter­vals over 12 months un­til it reaches $30bn per month.

For agency debt and mort­gage-backed se­cu­ri­ties, the cap will be $4bn per month ini­tially, in­creas­ing by $4bn at quar­terly in­ter­vals over a year un­til it reaches $20bn per month. The Fed has now raised rates four times as part of a nor­mal­i­sa­tion of mone­tary pol­icy that be­gan in De­cem­ber 2015. The cen­tral bank had pushed rates to near zero in re­sponse to the fi­nan­cial cri­sis.

Pol­i­cy­mak­ers fore­cast growth of 2.2 per­cent for 2017. – Reuters

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.