Who shall we believe, the Fed or data?


Rapid interest rate hikes could dismantle the financial market and worsen the condition involving household debt.

Later today, the Bank of England is expected to leave UK interest rates unchanged at historic lows of 0.25% on the basis that fast-rising UK inflation is being imported because of weaker sterling rather than signalling any overheating of the UK economy.

Asian market investors may also have been further spooked by the probe on US President Donald Trump, who has been accused of obstruction of justice after he sacked former Federal Bureau of Investigation head James Comey.

The rate setting committee of U.S central bank said that the economy had continued to strengthen and job gains have remained solid, which has indicated its views on recent consistency in inflation as largely transitory.

During the financial crash and its aftermath the Fed bought up large quantities of Treasury bonds and mortgage-backed securities, forcing interest rates down and providing cash to markets as banks and investors sold their holdings. In essence, by its actions Fed Chair Yellen told the markets that policy is no longer data dependent.

"The meeting was definitely tilted towards the hawkish side". Shares in Southeast Asia were mostly lower.

Weakening oil prices that may indicate commercial activity isn't strong enough to reduce a glut in energy products also hurts.

Asian markets fell overnight and European indices following suit, with the Cac 40 in France down almost 1% and Germany's Dax off 0.5%. After a late tumble in technology stocks, the Nasdaq composite lost 0.4 percent, to 6,194.89. Japan's Nikkei fell 0.3%.

Worries that policy tightening measures will weigh on China's growth, kept Chinese stocks in check.

While the territory effectively imports USA monetary policy due to its currency peg, local banks have been reluctant to pass on higher rates to customers amid fierce competition for mortgages - heightening a property boom, as well as fueling depreciation in the Hong Kong dollar.

He said: "A slowing in domestic data and reduced expectations of a 2017 fiscal loosening have clearly started to weigh on Fed thinking".

CURRENCIES: The dollar rose to 109.64 from 109.57 yen. "But I'm basically saying that before I'd be comfortable taking the next step in raising the fed funds rate, I'm going to want to see more evidence that we're making progress in reaching our 2 percent inflation objective". Bond yields hit their lowest level of 2017. Put another way, when a 10-year Treasury on the Fed's books comes due, the money it gets back from that investment will not be used to go out and buy another Treasury.

Underlying trends in the dollar and bond yields will dominate in the short term, although a very sharp slide in equity markets would tend to underpin gold, especially if President Trump comes under renewed pressure.