US Federal Reserve hikes rate by 25 bps

The hike is the second in three months and the third in six months.

The US Federal Reserve on Wednesday raised interest rates by 25 basis points (bps) to a range of 1 to 1.25 per cent. 
 
The hike is the second in three months and the third in six months.
 
The Fed said that it will increase interest rates one more time this year, signaling growing confidence in the US economy and market’s job creation capabilities. However, it didn’t specify about the timing of the hike. 
 
The US central bank also provided clarity on its plan to reduce its $4.2 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.
 
As per the Fed, the normalisation of its balance sheet will be put into effect “relatively soon”. 
 
The plan, which would feature halting reinvestments of ever-larger amounts of maturing securities, did not specify the overall size of the reduction. 
 
“What I can tell you is that we anticipate reducing reserve balances and our overall balance sheet to levels appreciably below those seen in recent years but larger than before the financial crisis,” said Fed Chair Janet Yellen.
 
The Fed’s preferred measure of underlying inflation fell down to 1.5 per cent from 1.8 per cent earlier this year – below the central bank's 2 per cent target for more than five years.
 
The unemployment rate by the end of this year moved down to 4.3 per cent, and the central bank expects it will again slip to 4.2 per cent in 2018.
 
Source: Media reports
 

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