"The Fed announcing an update to their reinvestment principles leaves September open".
"The committee now expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated", the Fed said in its statement.
She added that the balance sheet normalization could be put into effect "relatively soon".
The central bank voted to raise its key rate target to a range of 1% to 1.25%.
According to the plan, the Fed will set a set of gradually increasing caps on the amount of the Treasury and agency securities that would be allowed to run off each month.
U.S. stocks edged lower and prices of U.S. Treasuries pared gains after the Fed's policy statement. The Federal Reserve is also likely to raise rates at least one more time this year, unless something unexpected happens to the economy (such as a blowup this year over the debt ceiling). The central bank had pushed rates to near zero in response to the financial crisis. Stock and bond prices weakened after the Fed's moves as some investors anxious that the actions would throttle back economic growth.
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Fed officials expected the economy to grow 2.2 percent this year, compared to their forecast of 2.1 percent in March. Inflation was expected to be at 1.7 percent by the end of this year, down from the 1.9 percent previously forecast.
The rate hike should not come as a surprise for investors on Wall Street.
If it truly is indicative of a slowing economy this may put the United States dollars at risk of further retreat as it may jeopardize the FOMC outlook of one additional rate hike beyond June, (many investors think the September meeting looks the most likely date for this 3rd hike).
Analysts and investors had had mixed expectations ahead of the Fed, with some expecting a more dovish outlook given the recent weaker economic data, but long term the Fed's outlook is well supported and that is providing support for the greenback. "We have a very strong labor market, an unemployment rate that's declined to levels we have not seen since 2001 and even with some moderation in the pace of job growth, we have a labor market that continues to strengthen". The move follows a record run of jobs growth in the U.S. that has driven the unemployment rate down to its lowest level in 16 years.
The exchange rates at MB Bank dropped from VND22,750 to a dollar on Wednesday to VND22,720 this morning.
In fact, the Fed has said in the past that if it reduces the balance sheet by $500 billion, it is the equivalent of two rate hikes, he pointed out.
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