Stocks fall, dollar pares losses after Fed decision

According to the median projection of FOMC participants in March, which will be updated on Wednesday, officials expected it would be appropriate to keep short-term real interest rates at minus 0.5 percent through the end of this year, rising to 0.1 percent by the end of 2018, once adjusted for the projected level of inflation at that time. Fed officials warned that keeping rates too low, for too long, could limit the bank's ability to respond to a financial crisis.

"The numbers cast serious, serious doubt on whether there will be another hike this year", said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in NY. However, the 2-year Treasury yield, which has also moved higher prior to the last three rate hikes, has stalled.

By 0743 GMT in London, the Canadian, New Zealand and Aussie dollars were between 0.2 and 0.6 percent higher on the day against their US counterpart at respectively C$1.3218, $0.7248 and $0.7581.

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The decision to hike rates was contingent on whether improvement had been made toward the central bank's two objectives, maximum employment and price stability, or inflation approaching its 2 percent objective. Earlier on Wednesday, the Labor Department reported consumer prices unexpectedly fell in May, the second drop in three months. Summaries of economic projections are released quarterly. In December 2015, the Fed raised the federal funds rate for the first time in nine years.

The Fed's interest rate decision will be announced at 2 pm ET. Only Neel Kashkari, president of the Minneapolis Fed bank, opposed the increase. As a result, economists at J.P. Morgan Chase & Co. expect core prices measured by the Fed's preferred inflation to show an annual gain of less than 1.4% in May. Those forecasts are far below the 3 percent annual growth the Trump administration has said it can achieve with tax cuts, deregulation and tougher enforcement of trade rules to protect American jobs.

The Fed says it expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated.

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With this foreign demand for safe assets, the MBA expects USA mortgage rates "are going to be held back by the lower rates overseas over the next couple of years".

"Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined", the FOMC statement said.

US government bond prices rallied Wednesday after the inflation report from the Labor Department, sending the yield on the benchmark 10-year Treasury note to a fresh 2017 low. Since that time, market expectations have fallen considerably, and it will be interesting to see if the Fed makes a move to lower its own expectations through the dot plots it releases following the June meeting. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

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