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On Fed rate hike

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Wall Street Bull Blizzard

The US Federal Reserve has raised interest rates, as expected, and signalled it expects another couple of hikes this year as the American economy performs strongly.

After March, however, primary dealers were split on the timing for when the Fed would raise rates during the rest of 2017.

Economists expect the Fed to raise rates gradually two to three more times in 2017.

They see the benchmark rate rising to 2.1 percent next year, the same as in the December Summary of Economic Projections (SEP), which would mean another two rate hikes in 2018. The increase takes the interest rate up to a range from 0.75% to 1%. A few years ago, markets reacted very strongly to rumors of a possible Fed rate increase.

Mr. Trump has proposed an ambitious program of tax cuts, increased infrastructure spending, and deregulation, but Yellen said Fed officials should have "plenty of time" to formulate a response.

The decision to raise rates Wednesday "reflects the economy's continued progress toward the employment and price stability objectives assigned to us by law", Federal Reserve Chair Janet Yellen said at a press conference. They should be prepared for the fallout of higher interest rates here too. Markets in fact soared following rate hikes, financials dropped, bond yields fell flat and the greenback nosedived.

"The committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate". Remember that from December 2008 until December 2015, United States base interest rates were effectively zero.

After the financial crisis of 2008, the Fed responded by dropping interest rates to near zero in an effort to stimulate the economy by encouraging banks to borrow and lend money at little cost.

Fitch said that the recent USA rate hikes could mark the beginning of a significant shift in global interest rate environment, with benchmark United States policy rates settling higher over the long-term than current market expectations. Inflation is closing in on the Fed's target of 2 percent, and Yellen said the unemployment rate is continuing to fall. Auto loans tend to be more sensitive to competition, which can slow the rate of increases, Mr. McBride noted.

All of which has sent the Aussie 1.7 percent higher since Monday and if sustained, it would be the first such gain after five weeks of losses. Housing starts rose to a seasonally adjusted annual rate of 1.288 million in February while the Philadelphia Fed Index topped forecasts at 32.8 for March.

Gordon Sun (孫明德), director of the Taiwan Institute of Economic Research's Economic Forecasting Center, agreed, saying that the US remains at an early stage in an interest rate hike cycle and the latest move did not surprise the capital market at all.

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