U.S. stocks open lower after Fed's rate-hike decision

U.S. stocks open lower after Fed's rate-hike decision

Jerome Powell, the new Fed Chairman, acknowledged the strength of the economy by revising the growth outlook higher for this year and the next in his first policy meet, but chose to stick to the central bank's earlier plan of three rate hikes this year.

Second, although the Fed expects to gradually raise rates, global financial markets may still find higher rates hard to handle.

The Fed has said it expects to raise interest rates a total of three times this year, and one of the key debates on Wall Street is whether it will wind up increasing rates three times or four. Higher rates could also lead to portfolio rebalancing by global investors. The move places U.S. interest rates in a band from 1.5 to 1.75% which is still very low by historic standards.

"The cumulative effect (of rate hikes) can be quite significant", said Greg McBride, chief financial analyst for Bankrate.com.

China blamed US export restrictions for its record trade surplus with the United States, but expressed hope that a solution can be found to settle trade issues.

The central bank is trying to balance a low unemployment rate with the potential for higher inflation.

The Federal Reserve said the 0.25% change was being made to reflect a strengthened economic outlook. Further, growth rate is anticipated to be 2.4% in 2019 - moderately higher than the December forecast of 2.1%.

Powell, 65, is a former privateequity executive - experience the Trump administration appointee brought up to describe how businesses consider tax policy when making investment decisions.

"Trade policy has become a concern going forward for that group", the chairman said, referring to business leaders. Further, the labour market remains strong (average 240,000 job gains in last three months) and unemployment stayed low (4.1 percent in February 2018).

There are also other changes in the Fed's statement. The statement described economic activity as rising at a "moderate rate", a slight downgrade from January, when the Fed described the economy as rising at a "solid rate".

In the forecasts, U.S. central bankers projected a median federal funds rate of 2.9% by the end of 2019, implying three rate increases next year, compared with two 2019 moves seen in the last round of forecasts in December.

During the announcement, the Fed did not waver from the previously forecast three hikes for 2018, but did provide a steeper outline for hikes in 2019 and 2020, citing an improving economic outlook.

Wednesday's action sets the Federal Funds rate - paid by banks for overnight loans - at the highest target since the depths of the 2008 financial crisis, when the central bank slashed the benchmark from 2% to a near-zero range, an all-time low.

But a host of factors, including the massive tax cuts enacted by Congress, a weaker dollar and robust job creation, suggest that the Fed is likely to adopt a more hawkish policy stance. But subsequent reports on wages and inflation have been milder, and the markets appear to have stabilized.

Exporters Canon and Sony climbed around 2 percent despite a firmer yen. "'That is, in principle, an increase was expected, and the economies of many countries were ready for this".



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