Fed Chair Yellen Warns about Its $4.5 Trillion Balance Sheet Unwinding

Global shares fall on Fed rate hike, plunge in oil prices

Global shares fall on Fed rate hike, plunge in oil prices

European equity benchmarks declined on Thursday morning, taking their cue from Asian markets, as investors mulled the outlook for the US economy even after the US Federal Reserve raised its key interest rate by a quarter of a percentage point on Wednesday and maintained its outlook for one more rate increase this year.

The US Federal Reserve last night raised interest rates by a further 25 basis points, its second hike of the year, but given the slowing economic data, investors are split on whether a third increase will be seen this year.

In a statement it said: "The committee now expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated".

This evening the Central Bureau of Statistics will publish Israel's Consumer Price Index for May with economists expecting that it rose 0.3% over the month.

This is the second interest rate rise in three months, and most analysts expect that the Fed will increase rates once more this year.

The Fed's preferred measure of underlying inflation has retreated to 1.5 percent, from 1.8 percent earlier this year, and has run below the central bank's 2 percent target for more than five years.

Yellen indicated the Fed still remained confident inflation would rise to its target over the medium term, bolstered by what she described as a robust labor market that is continuing to strengthen.

USA stocks opened lower Thursday as investors continued to digest the Federal Reserve's decision to raise interest rates by a quarter point.

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Fed policymakers also gave some details for how they intend to shrink their $4.5-trillion balance sheet beginning this year.

"The U.S.is good. More important, we see the global markets finally beginning a six- to eight-year turn", said Christine Armstrong, executive director at Morgan Stanley in Boston.

"Because the Korean market rate has been rising, the possibility of a rapid capital outflow due to Fed's rate increase, is deemed low; Korean policy rates were lower than United States between August 2005 and September 2007, but Korea survived".

Fed Chair Janet Yellen was holding a press conference at 2:30 p.m. EDT (1830 GMT). A neutral rate implies no negative effect on growth.

On Friday, the Bank of Japan is widely expected to keep its monetary policy unchanged, and reassure markets it will lag the Fed in tapering its massive stimulus programme, as Japan's inflation remains low despite a strengthening economy.

The US market closed mixed on US Federal Reserve decision.

WALL STREET ON WEDNESDAY: The Standard & Poor's 500 index edged 0.1 per cent lower, to 2,437.92.

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