USA stocks closed mixed Wednesday, with the Dow closing at a record high, as the Federal Reserve raised the benchmark interest rate by 25 basis points, the third such increase in 2017. On a 12-month basis, both overall inflation and inflation for items other than food and energy have declined this year and are running below 2 percent.
That projection reflects Federal Reserve governors' belief that a tightening labor market will accelerate growth in workers' paychecks and consumer prices next year.
Hopes for progress on US tax reform, including tax cuts, is probably lending support to the dollar for now, said Teppei Ino, analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.
Yellen's comments, which were delivered in what is nearly certainly her final press conference as Fed chair before her term expires in February, come as some Senate Democrats have assailed Powell and President Trump's recently installed vice chair of supervision, Randal Quarles, as insufficiently tough on Wall Street banks and questioned their dedication to ensuring that financial firms do not pose a risk to the financial system. "I think the political environment that surrounded her job did not make things any easier and her appearances before congress became increasingly acrimonious".
Ms Yellen said at a news conference that the likelihood of lower taxes is why Fed officials expect the economy to grow at 2.5 per cent in 2018. "The BOK is focused on the Fed's pace of rate rises next year and has kept its 2018 outlook unchanged". Yellen was the first woman to serve in the role. It was the third rate hike this year. But in resuming its rate hikes, the Fed is acknowledging the steady strengthening of the USA job market, which is benefiting from a sturdier global economy.
The decision to raise rates is an indication that the central bank may be concerned about asset bubbles and the possibility of inflation creeping higher.
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"The market has long anticipated the Fed's base rate increase this month", Bank of Korea (BOK) Gov. That is unchanged from the last round of forecasts in September.
U.S. stocks extended their gains after the release of the policy statement, while Treasury yields dropped to session lows. Powell has been a Yellen ally who backed her cautious stance toward rate hikes in his five years on the Fed's board.
IG market strategist Pan Jingyi said the weak inflation is fuelling market doubt over the Fed's ability to hike rates that much in 2018.
In a note to clients on Thursday morning, United Overseas Bank economist Alvin Liew wrote: "One highlight. was the change in the language that "labour market conditions remain strong", versus "labour market conditions will strengthen somewhat further" in November, and some interpreted this as the Fed expects the U.S. job market improvement to slow".
Policymakers do see the federal funds rate rising to 3.1 per cent in 2020, slightly above the 2.8 per cent "neutral" rate they expect to maintain in the long run.