Countdown to first Fed hike in a year under way, but focus shifting to 2017

Wed Dec 14, 2016 7:30am EST
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By Dhara Ranasinghe

LONDON (Reuters) - World stocks and the U.S. dollar edged lower, while government bond yields fell, with investors certain the Federal Reserve will lift interest rates for the first time in a year on Wednesday but less so about what it may do in 2017.

European shares fell 0.4 percent and U.S. stock futures were flat, suggesting a cautious start to Wall Street trading after Tuesday's stock market rally to all-time highs.

Asian stocks outside Japan eked out just a 0.1 percent gain, while benchmark indexes in Japan and China dithered either side of flat with investors reluctant to push shares much higher before the Fed meeting.

The Fed is widely tipped to lift interest rates 25 basis points to 0.50-0.75 percent at the end of a two-day meeting on Wednesday. Its rate announcement is due at 1900 GMT, followed by Chair Janet Yellen's news conference 30 minutes later.

It would be the Fed's first interest rate hike in a year and its second since the financial crisis.

With a rise fully priced in by markets, eyes are on the Fed's economic and rate "dot plots" for a sense of how policymakers think President-elect Donald Trump's policies will impact growth and inflation.

"Last year the Fed guided the markets to expect at least four rate rises this year, guidance that proved to be woefully wide of the mark, and it is likely that they won't want to make the same mistake again," said Michael Hewson, chief market analyst at CMC Markets.

"That suggests that Fed chief Janet Yellen can expect some serious cross-examination of how the FOMC (Federal Open Market Committee) view not only the economy, but also President elect Donald Trump's plans for it."   Continued...

A man looks at an electronic board showing Japan's Nikkei average outside a brokerage in Tokyo, Japan, December 1, 2016. REUTERS/Kim Kyung-Hoon