Fed should be cautious on further rate hikes, Kaplan says

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Many U.S. stocks will be vulnerable to an ongoing tightening in financial conditions especially those with overstretched valuations.

The dollar already was trading higher ahead of the release of US economic data on Thursday in response to the Fed's decision to raise USA overnight interest rates by 25 basis points to a target range of 1.00-1.25 percent on Wednesday.

US stocks edged lower and prices of US Treasuries pared gains after the Fed's policy statement. This was seen in stark contrast with the May MPC meeting, during which only one member voted to hike. She suggested that balance sheet normalization could be put into effect "relatively soon".

Further, on the improving USA economy, the Fed plans to shrink its portfolio of treasury bonds and mortgage-backed securities worth $4.5 trillion, purchased during the 2007-2009 financial crisis. "This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and global developments".

'Is the market always right?

The administration's budget does expect the federal government's interest rate costs to rise, but that is due to the faster economic growth the program is expected to foster, Mulvaney said.

Consequently, given the weak economic and inflation data points, observers are questioning whether or not the Fed can maintain its current level of monetary tightening.

John Hardy, head of forex strategy at Saxo Bank, told CNBC: "The euro got a bit overextended on the recent run higher as it ran out of new good news to take it higher and the European Central Bank did its utmost to dampen expectations for the beginning of any asset purchase taper". For the first three months of the year, consumer prices increased by more than 2% on a year-over-year basis.

The deflationary impact of technology and ageing populations might also contribute to a low interest rate environment for some time to come, they said.

So there's more to this increase than the effort to keep inflation under control.

The Fed kept forecast for economic growth this year of 2.2 percent, up slightly from its March forecast, with growth of 2.1 percent in 2018 and 1.9 percent in 2019.

While the territory effectively imports U.S. monetary policy due to its currency peg, local banks have been reluctant to pass on higher rates to customers amid fierce competition for mortgages - heightening a property boom, as well as fueling depreciation in the Hong Kong dollar.

Park Seong-woo, an analyst at NH Futures, said the household debt problem will make it hard for the BOK to raise its rate this year, despite Gov. With the ongoing weakness in the dollar, we do not expect the rupee to breach 65.50-66.00 levels this year. In gradually removing some of the highly stimulative policies that it introduced during and after the Great Recession, she explained, the Fed was trying to avoid a situation "where we have done nothing and then need to raise the funds rate so rapidly that we risk a recession". Rather than go up, the 10-year yield actually fell 6 basis points today.

With the prospect of a slower pace of rate increases, the Stoxx Europe 600 Banks Index traded in negative territory for most of the session.