Fed raises interest rates, flags end of 'accommodative' policy

Fed announces interest rate decision

US Federal Reserve raises interest rates amid strong growth

TOKYO, Sept 27 (Reuters) - The dollar steadied against its peers on Thursday as a brief boost from the latest U.S. Federal Reserve interest rate hike faded, with lower U.S. Treasury yields reducing support for the greenback.

The Federal Reserve is set to announce at 2 p.m. ET that after a two-day policy meeting, it chose to raise interest rates.

I interpreted the Fed as dovish because it dropped the word "accommodative" from its monetary policy statement and Federal Chairman Powell downplayed the fear of inflation spiking to the upside.

The Dow Jones Industrial Average .DJI was up 0.32 percent at 26,577.49 points, while the S&P 500 .SPX gained 0.39 percent to 2,926.96.

The Fed hikes could mean greater interest on your savings account, according to Richard Barrington.

"This change does not signal any change in the likely path of policy".

But the strengthening of economic performance may be changing the Fed's attitudes about the natural rate of interest as well as the key variables used to estimate it Real GDP growth has strengthened and remained well above the Fed's estimate of potential growth, driven in part by an acceleration in capital spending, even as the Fed has been raising rates and unwinding its balance sheet. High rates in the past have been the death knell for economic expansions and bull runs for stocks, but analysts say markets can continue to rise as long as this rise in rates is gradual and for the right reasons.

Most of the world's stock markets pushed higher and the dollar rose Thursday as investors embraced the Fed's view that the U.S. economy is growing solidly but not at imminent risk of overheating.

There was no surprise that the Fed's so-called dot-plot graph-the year-end fed-funds guesses from the Board of Governors and the presidents of the district reserve banks-indicated four rate hikes of one-quarter percentage point each in 2019, which was unchanged from the previous forecast.

"With the unemployment rate already in the mid-3% area and core inflation at 2%, it's little wonder the FOMC is projecting the funds rate to rise above the long term or neutral rate", he says. For a three-year CD, several online banks offer rates at that level or slightly higher.

YIELDS: Treasury yields have been climbing steadily this year as the strengthening economy bolstered expectations for rate increases by the Fed.

Brian Nick, chief investment strategist at Nuveen, said that it was puzzling that both stocks and bond yields fell following the Fed's move.

Powell and his colleagues are trying to engineer a soft landing for the United States economy, now enjoying its second-longest expansion on record, by raising rates just enough to prevent overheating, but not so much that they trigger a recession.

"The market has suddenly found itself in the doldrums with the Fed's rate hike out of the way and with impact from trade tension woes receding", said Koji Fukaya, president of FPG Securities in Tokyo. "Financial markets should prepare for a more hawkish tone", Natixis economists Joseph Lavorgna and Thomas Julien wrote ahead of the meeting. It closed at $17.24, up 43.7 percent.

CURRENCIES: The dollar rose to 113.04 Japanese yen from 112.93 yen late Tuesday.

ENERGY: Benchmark U.S. crude rose 68 cents to $72.25 per barrel in electronic trading on the New York Mercantile Exchange while Brent crude, used to price global oils, added 44 cents to $81.78 per barrel. The Shanghai Composite Index lost 0.2 percent to 2,802.18.

Japan's Nikkei 225 rose less than 0.1 percent to 23,953.98.

The pound edged down 0.1 percent to $1.3172.

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