FTSE 100 Slips As Fed Increases Interest Rates

FTSE 100 Slips As Fed Increases Interest Rates

The US market closed mixed on US Federal Reserve decision.

U.S Federal Reserve has hiked interest rates by 25 basis points in line with the market speculations.

Fed futures markets now put the chances for another rate increase this year to below 50 per cent.

The vote in favor of the hike was unanimous.

Since the financial crisis as the Fed has bought government and mortgage-backed bonds to underpin the American economy, but policymakers have confirmed that they will start to reduce reinvesment of bonds as they mature. She noted that-among other things-stabilization in the labor force participation rate is signaling a stronger jobs market.

Joseph Gagnon, senior fellow at the Peterson Institute for International Economics and former visiting associate director of the Division of Monetary Affairs at the US Federal Reserve Board, told Radio Sputnik that rates will remain relatively low for some time despite the rate hike.

The U.S. central bank on Wednesday raised the benchmark interest rates for the fourth time since December 2015, and unveiled plans to start trimming its balance sheet.

However a low unemployment rate upheld the bank's decision, with Federal Reserve Chair Janet Yellen saying: "Our decision ... reflects the progress the economy has made and is expected to make".

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Germany's DAX fell 0.9 percent to 12,690 while the CAC40 of France sank 1.1 percent to 5,188.

CURRENCIES: The pound rose nearly a cent, from $1.2695 to $1.2781, after the Bank of England's statement - currencies tend to rise when rates increase.

Outside of the labor market, the data flow for the US - including another soft USA core Consumer Price Index (CPI) inflation report this morning - had been surprising on the downside.

This is the second interest rate rise in three months, and most analysts expect that the Fed will increase rates once more this year. The FTSE 100 of Britain dropped 0.4 percent to 7,474.40. USA employers continue to add jobs at a steady rate.

It means the USA central bank is scaling back its support for the economy as it continues to recover and grow.

The Fed has a mandate to keep the country at full employment and make sure inflation does not rise or fall too much. "That is the main reason why the dollar is remaining supported for now", said Manuel Oliveri, currency strategist at Credit Agricole in London.

The dollar index was last down 0.06 per cent, while the euro remained unchanged at $1.1214.

Brent crude settled down 8 cents at $46.92 a barrel, while US crude settled down 27 cents at $44.46, after touching a six-month low of $44.32 a barrel.

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