Published: Sat, December 16, 2017
Finance | By Loren Pratt

US Fed set to increase rates

US Fed set to increase rates

Gold was at a one-week high on Thursday.

The decision by the Fed to hike rates by 25 basis points to a range of 1.25 to 1.5 per cent came as the central bank said it expects faster economic growth and lower unemployment in the United States next year.

Stocks climbed, with the Dow Jones Industrial Average rising 0.47% to 24,619.7 and the S&P 500 adding 0.22% to 2,669.9. While inflation is below target, steady economic growth and unemployment at a 16-year low are among reasons why the Fed is widely projected to raise borrowing costs a third time in 2017 at the conclusion of its two-day meet.

Meanwhile the, which measures the greenback against a basket of six major currencies, inched forward 0.06% to 93.46.

According to the Fed's quarterly forecasts, the median estimate for economic growth increased from 2.1 percent to 2.5 percent.

Crucially, the Fed maintained earlier forecast for just three 1/4-point rate hikes in 2018. An unexpected cooling in a key measure of United States inflation means FedReserve policy makers may be hard-pressed to raise interest rates more aggressively in 2018.

Hong Kong fell 0.19 per cent, Tokyo dropped 0.28 per cent while Shanghai slipped 0.32 per cent.

Yellen said tax cuts were discussed by Fed members at this week's meeting, which culminated in an interest rate increase.

The Fed's interest rate hike this week marks the fifth such increase since December 2015.

"The focus is on the core measure of inflation, that came in weaker than the market expected", said Vassili Serebriakov, a foreign exchange strategist at Credit Agricole in NY. At present, the Fed expects inflation to hover around 1.7 percent by year's end.

"Thus for 2018, based on a macro backdrop of continuation in the global growth story, subdued inflation and gradual monetary policy convergence, outright yield levels can be expected to adjust higher".

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