FTSE 100 Slips As Fed Increases Interest Rates

FTSE 100 Slips As Fed Increases Interest Rates

The yield on the 10-year Treasury note was 2.12 percent, the same as shortly before the statement came out.

Rising interest rates will eventually affect millions in the US from buyers of home to those with credit cards to those saving money.

The Standard & Poor's 500 index, the benchmark that professional investors follow, likewise wasn't changed much either. Dow Jones Industrial Average touched its all-time high on Wednesday.

Gold futures slumped Thursday, building on a retreat that started Wednesday afternoon as the Federal Reserve raised interest rates and sounded determined to hike again this year. The unemployment rate is now at 4.3 percent, at - or even below - the level long considered to be full employment. However, mortgage rates are not expected to increase immediately.

But the estimate for the central bank's preferred measure of inflation, the PCE price index, was cut three-tenths to 1.6 percent, while the core PCE, which excludes volatile food and energy prices, was cut two-tenths to 1.7 per cent, according to the Summary of Economic Projections.

The economy grew at an anemic 1.2 percent annual rate from January through March. That's the level the Fed believes is a neutral rate - neither stimulating growth nor restraining it.

Overall, the Fed was "very nonchalant about inflation and kind of brushed it off", said Blake Gwinn, U.S. interest-rates strategist at NatWest Markets. The policymakers signaled that they still expect to raise rates once more in 2017.

Greg McBride, an analyst with consumer financial site Bankrate.com, tells NPR's Yuki Noguchi that, taken together, the Fed's moves have caused home equity and auto loan rates to increase about 1 percentage point over the last two years.

Analysts in recent weeks have become increasingly doubtful there would be a third rate increase later this year, as inflation, consumption and other economic data have indicated the weakness seen in the first quarter has continued.

However, the Fed says it would start reducing its holdings of bonds and other securities in this year, which is a sign of its confidence in USA economy's growth and strengthening job market.

The Fed has announced that at some point this year it is likely to begin the process of gradually reducing its massive holdings of USA treasuries and mortgage backed securities, now worth $4.5 trillion.

The overarching message the Fed sent Wednesday was an upbeat one: It believes the US economy is on firm footing as it enters its ninth year of recovery from the Great Recession, with little risk of a recession. It's widely expected the central bank will raise rates for the second time this year, when it reveals its policy statement at 2pm ET. There was only one rate increase in both 2015 and 2016.