To minimize the impact of the USA rate hike, economic leaders must get the household debt issue under control.

There was little reaction in the Treasury or mortgage-backed bond market yesterday.

In other corporate news, Kroger shares tumbled 18.9 percent after the supermarket chain slashed its full-year profit forecast.

ASIA'S DAY: Japan's Nikkei 225 stock index fell 0.3 percent to 19,831.82 and South Korea's Kospi sank 0.5 percent to 2,361.65. But the rest of the market has held steady through the mini-bout of tumult, and the Standard & Poor's 500 index is just 0.3 percent below its record.

RATE HIKE: The Federal Reserve raised interest rates for the third time since December, something investors had widely expected based on the Fed's recent statements. The yield differential between USA and Indian bonds continues to be very high.

That has some contrarians anxious about what will happen when central banks move away from stimulus. Mom-and-pop investors seem relatively unfazed for now.

There's a lot of noise right now when it comes to bank stocks. The Fed anticipates more general inflation and wage inflation, but so far it is all under control.

"If your best-performing sectors are real estate and utilities, it's a good sign that interest rates are dominating the equity market", said Brian Nick, chief investment strategist with TIAA Investments, an affiliate of Nuveen. And that might well prompt you to start raising interest rates to prevent an inflationary spiral from developing. "I wouldn't want to pull out of stocks". Rather than go up, the 10-year yield actually fell 6 basis points today.

The RBI will also be mindful of the Fed impact on the rupee and the overseas borrowings.

Under that backdrop, the Treasury curve will flatten even more than it already has, setting a new low for the past decade.

If Washington is able to cut tax rates, as Republicans have promised to do, profits could be set for an even bigger bounce.

"Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the committee's 2 percent objective over the medium term", the committees' statement noted.

Benchmark 10-year Treasury yields were last at 2.160 percent, from 2.138 percent late Wednesday.

Treasurys and other assets, like mortgagebacked securities, on its balance sheet. It is a strong sign that the US central bank believes the economy in the country is solid.

Despite recent tepid price pressures, the Fed expects inflation to pick up - eventually - citing "one-off reductions" in certain categories such as cellphone services and prescription drugs as the reason for the recent lower readings. It is likely to be lower interest rates and a modest pace of run down in Fed assets.

The moves seen in the aftermath of the Fed's tightening of monetary policy yesterday have extended, with the Dollars finding supporting and UST yields drifting higher.

"We believe Asia rates generally will follow the U.S., but given the ample liquidity in the system, we would expect the pace of rate rises to remains gradual". 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".

The difference in policies is driving the euro down against the dollar.


COMMENTS