Fed hikes key rate, unveils bond trimming plans

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And the most important pillar of the economy - the job market - remains solid if slowing, with employment at a 16-year-low of 4.3 percent - even below the level the Fed associates with full employment.

That said, no one expects the Fed's rate hikes to turn aggressive. Her term ends next February, and it's unclear if President Trump will renominate her for a second term.

USA stocks rose slightly after the Fed announcement while the dollar reversed some of its earlier losses though bond yields moved little. The yield on the 10-year bond was at 2.1310% from 2.2120%. On Wall Street, futures for the Dow Jones industrial average and the Standard & Poor's 500 index were little changed. The Fed previously raised rates in March, and on Wednesday, it signaled plans for one more rate increase this year.

"The labor market has continued to strengthen and that economic activity has been rising moderately so far this year".

Meanwhile, the inflation rate is still below the 2 percent level that the Fed deems necessary for a healthy, growing economy and stable prices.

The Australian dollar rose 1.3 percent to its highest against its USA counterpart since April 3. The reasoning is that the policymakers will want more time to determine whether a slowdown in growth and inflation at the start of 2017 was indeed "transitory", as they described it in May, or the start of another slump that could lead the Fed to halt its rate hikes. They continue to expect the economy to grow 2.1 percent next year and 1.9 percent in 2019.

Wednesday's rate increase had been largely anticipated by investors and analysts, but expectations for how the Fed's plans later this year will unfold aren't clear.

CIBC Research: A Fed rate hike is all but a given tomorrow, so markets will be focused on any commentary with regards to the future pace of policy tightening or changes to the FOMC's economic projections.

Fed leaders end a two-day meeting in Washington and investors believe there's a 95% chance of a rate hike.

Fed officials voted 8-1 to raise the federal funds rate to a range of 1 to 1.25 percent.

The Fed expects to begin the ultra-gradual process of reducing that balance sheet this year.

Such projections aren't set in stone and reflect how the views of Fed officials have shifted.

The Bank of England is expected to keep the U.K.'s benchmark interest rate steady when it announces its policy decision on tomorrow.

The Fed holds its fourth of eight FOMC meetings of the year this Tuesday and Wednesday (June 13-14, 2017).

The central bank added that while its main tool for managing monetary policy will remain short-term interest rates, it would be prepared to halt its balance sheet reduction or even add more bonds to its portfolio should there be a "material deterioration in the economic outlook". Lael Brainard, a Fed governor, has suggested that balance sheet reduction could start after the Fed funds rate range gets midway towards policymakers' median projection for the long-run value of the Fed funds rate, which is now 3 per cent. US stock markets were relatively flat through afternoon trading, while the yields on 10-year Treasury notes had fallen to 2.11 percent. In Asia, Japan's Nikkei 225 ended the day marginally lower.

The Toronto Stock Exchange's S&P/TSX composite index lost 209.62 points, ending the session down 1.36 per cent at 15,170.13.