European Stocks Called Lower as Investors Trim Risk After Fed Rate Hike

The benchmark lending rate was lifted by a quarter percentage point to a target range of 1 per cent to 1.25 per cent. It was only the third hike since Fed chair Janet Yellen had ended the flatline interest rate policy that followed the severe financial crisis which broke out 10 years ago.

With GDP growth expected to remain above its long-term potential over the next few years, and the unemployment rate to remain below its long-run level, the Fed as a whole seems to be willing to look past what it sees as near-term economic noise.

Interest rates are seen rising one more time by the end of this year, according to the median projection of the forecasts released with the Fed's policy statement, in keeping with the previous forecast. "Household spending has picked up in recent months, and business fixed investment has continued to expand".

But coming on a day when the consumer price index and retail sales fell, in large part due to falling food and gasoline prices, but with widespread declines in other categories, some economists are saying the Fed is no longer basing its decision on the data, as it has repeatedly said. Yesterday, the Fed hiked rates for the second time this year and hinted at curtailing quantitative easing to reduce the current $4.2 trillion portfolio in Treasury bonds.

"The Committee now expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated".

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Against its Japanese counterpart, the dollar shrugged off earlier losses and was flat at 109.55 yen, above Wednesday's eight-week low of 108.81 yen.

Yellen told reporters that the Fed wants the balance sheet contraction "to run quietly in the background over a number of years".

By contrast, the European Central Bank last week poured water over expectations that it would start to roll back its own huge money-printing programme or raise interest rates in the near future.

The dollar fell against a basket of currencies on Wednesday, after a pair of economic reports undershot expectations triggering concerns about a slowdown in the USA economy ahead of a widely expected interest rate hike from the Federal Reserve.

The rate hike was widely predicted and therefore market participants were more interested in the Fed's statements about the balance sheet unwind. President Trump has sent mixed messages over the past year about Yellen's performance leading the Fed. The board expects to raise rates at least three times this year. He billed his plan as a way to accelerate economic growth from the sluggish 2.1 percent annual rate of the past eight years.

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