Atlanta Fed Raises Q-2 GDP Growth View to 3.2%

Instead, it put great weight on labor market data that showed the unemployment rate had fallen 0.4 percentage point since the March meeting to 4.3% in May, a level that the Federal Open Market Committee (FOMC) believes represents full employment.

The US Federal Reserve on Wednesday raised its benchmark interest rate to between 1 and 1.5 per cent and hinted at further hike this year as the Federal Open Markets Committee chose to tighten monetary policy despite growing concerns over weak inflation.

Markets had been expecting the Fed chief Janet Yellen to sound more cautious.

The vote in favor of the hike was unanimous.

“They have taken a cautious approach to balance sheet normalisation, but they have begun it and it’s definitely a tightening of policy”, said ING strategist Martin van Vliet.

Relatively upbeat economic data from China and a surge in expectations of higher Canadian interest rates have helped currencies of commodities-related economies.

Meanwhile, Hong Kong’s de facto central bank followed the Fed and boosted interest rates for a third time since December past year, elevating the risk of a sell-off in the world’s priciest housing market.

The U.S. Federal Reserve will probably end its massive bond-buying program this fall, and could start raising interest rates around six months later, Fed Chair. However, even with a policy rate corridor of 1.0% to 1.25%, the real policy rate remains below inflation. The FTSE 100 of Britain dropped 0.4 percent to 7,474.40.

The dollar index, which tracks the U.S. currency against a basket of six rivals, was slightly lower on the day at 96.915 though above its overnight low of 96.323 plumbed after downbeat economic figures.

The Fed said the initial cap for Treasuries would be set at $6 billion per month initially and increase by $6 billion increments every three months over a 12-month period until it reached $30 billion per month in reductions to its holdings.

The MSCI All-Country World index was up 0.1 percent and has remained stuck in a tight range this month.

CURRENCIES: The dollar edged lower to 109.56 from 109.57 yen.

It means the United States central bank is scaling back its support for the economy as it continues to recover and grow. Long-dated Treasury yields though tumbled to their lowest since early November, thanks to the weak inflation and other economic data.

Brent crude, the global benchmark, was down 12 cents a barrel at $46.88.

Analysts said the rate hike was fully expected, but the central bank’s more hawkish tone was somewhat surprising.

The central bank forecast another rate increase later this year, alongside efforts to reduce its trillion-dollar holdings of USA government debt.