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US Federal Reserve hikes rates again

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US stocks and bonds fall as investors worry that policymakers would be choking growth

WASHINGTON After weeks of market volatility and calls by US President Donald Trump for the Federal Reserve to stop raising interest rates, the US central bank instead did it again - sticking by a plan to keep withdrawing support from an economy it views as strong.

US stocks and bond yields fell hard. With the Fed signalling "some further gradual" rate hikes and no break from cutting its massive bond portfolio, traders fretted that policymakers could choke off economic growth.

"Maybe they have already committed their policy error," said Mr Fritz Folts, chief investment strategist at 3Edge Asset Management.

"We would be in the camp that they have already raised rates too much."

Interest rate futures show traders are currently betting the Fed will not raise rates at all next year.

Wednesday's rate increase, the fourth of the year, pushed the central bank's key overnight lending rate to a range of 2.25 per cent to 2.5 per cent.

In a news conference after the release of the policy statement, Fed chair Jerome Powell said the central bank would continue trimming its balance sheet by US$50 billion (S$68 billion) each month, and left open the possibility that continued strong data could force it to raise rates to the point where they start to put a brake on the economy's momentum.

Mr Powell did bow to what he called recent "softening" in global growth, tighter financial conditions and expectations that the US economy will slow next year, and said that with inflation expected to remain slightly below the Fed's 2 per cent target next year, policymakers can be "patient".

Fresh economic forecasts showed officials at the median now see only two more rate hikes next year compared to the three projected in September.

But another message was clear in the statement issued after the Fed's last policy meeting of the year as well as in Mr Powell's comments: The US economy continues to perform well and no longer needs the Fed's support either through lower-than-normal interest rates or by maintaining of a massive balance sheet.

"Policy does not need to be accommodative," he said.

In its statement, the Fed said risks to the economy were "roughly balanced" but that it would "continue to monitor global economic and financial developments and assess their implications for the economic outlook".

The decision to raise borrowing costs again is likely to anger Mr Trump, who has repeatedly attacked the central bank's tightening this year as damaging to the economy. - AFP