Federal Reserve raises interest rate by quarter point

"So central banks elsewhere are still aggressively stimulating their economies and keeping their rates low, and that's acting as a bit of an anchor on longer-term rates".

In any event, interest rate projections for 2018 and 2019 are becoming less reliable guides to future policy amid the likelihood that the Fed's Board of Governors will see a major makeover in the next year.

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 percent, according to the Summary of Economic Projections. They acknowledged that inflation was running below target, but also that job gains have been solid.

By the end of the year, the Fed projects its benchmark rate will be at a neutral level, neither stimulating nor dampening economic growth.

However, Sydney climbed more than one percent and Hong Kong staged a late bounce to end up 0.1 percent. By then, the Fed's forecast would put its key policy rate at 3 percent.

Policymakers - who also raised interest rates a notch as expected - did not specify when they would begin the bond run-off, though they are aiming for some time later this year.

The rise was widely anticipated after a low unemployment rate, but other economic indicators, including inflation, have been weaker.

The Federal Reserve raised interest rates on Wednesday for the second time in three months, citing continued US economic growth and job market strength, and announced it would begin cutting its holdings of bonds and other securities this year.

The current inflation rate is 1.9 percent, which is pretty much in line with the Fed's target, so this isn't what the rate hike is in reaction to.

The U.S. Commerce Department will issue a report on May retail sales, which are expected to show a smaller rise of 0.1 percent after a 0.4 percent gain in April. Only Neel Kashkari, president of the Minneapolis Fed bank, opposed the increase. If the economy slows, the central bank said it could resume reinvestment of all of the principal payments or even increase the size of the balance sheet if warranted.

At 8:33 a.m. ET, Dow e-minis were up 25 points, or 0.12 percent, with 7,053 contracts changing hands. As of Friday, June 9, the fed funds market was pricing in a 96% chance that the Fed will hike rates by 0.25% at this week's meeting. "However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data". While the recent raises of rates have left little imprints on the markets, the Fed should also be cautious of the long-term effects of increased aggression in their monetary policy, which provides a subsequent reason in favour of delaying a further increase to rates.

The Fed is planning another action that could affect mortgage rates: selling off its portfolio of mortgage-backed securities.

Germany's consumer price inflation slowed to a six-month low in May, as initially estimated, data from the statistical office Destatis showed Wednesday.

Why does the Federal Reserve raise the interest rate? In Asia, Japan's Nikkei 225 ended the day marginally lower. But the S&P 500 dropped 0.3%, and the Nasdaq composite lost 0.5%, or 32.5 points. In part, the recent rise in negative-yielding debt is down to exchange rates, with the euro and the yen-which account for a lot of negative-rate bonds-rallying against the dollar.