U.S. pre-open: Stocks set to drop after hawkish Fed

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Mortgage-backed securities clung to earlier gains, with investors calling the plan modest.

"With many market participants anxious about a dovish outlook, a surprisingly hawkish one could catch some investors off guard", she said. The central bank had pushed rates to near zero in response to the financial crisis. "But I'd be shocked if, in 2020, there haven't been some bumps along the way".

On Wednesday, the Federal Reserve lifted interest rates for the second time this year by 25 basis points to between 1 and 1.25%, as expected, with Chair Janet Yellen reiterating that inflation is expected to return to target and forecasting one more hike this year.

However, the slippage in longer-dated yields may imply that investors aren't as unfazed by a batch of data, including a recent tepid reading of consumer prices (http://www.marketwatch.com/story/inflation-falls-again-in-may-as-cpi-recedes-from-recent-high-water-mark-2017-06-14) and the Friday's housing data, that have signaled that inflation and perhaps the economy, may not perform as optimally as the central bank hopes.

The MSCI All-Country World index .MIWD00000PUS was up 0.1 percent and has remained stuck in a tight range this month.

At the time of writing this article, the Euro Australian Dollar exchange rate trended in the region of 1.4710.

USA two-yields were last at 1.335 percent, down 3 basis points on the day. The vote's composition had been expected to be 7 to 1 in favor of a hold. Year-on-year, the New Zealand economy grew 2.5%, disappointing forecasts for a 2.7% growth rate.

Ahead of the announcement, market participants had been of the view that there would be no further rate increases this year following the tame inflation reports.

However, the Fed did lower its inflation forecast for 2017.

Charles Melchreit of Pioneer Investments says markets may be finding it "a bit of a comforting outcome", that the Fed isn't willing to shift the rate hike path it has set out that quickly, even if current inflation numbers aren't backing it up. Softening commodity prices did little bolster arguments that inflation will pick up the pace, even as the US labor market remains on strong footing - raising the specter that central bank officials made a policy error.

The dollar fell to a seven-month low against a basket of currencies on the data, before retracing some of the losses. The Dow Jones Industrial Average edged higher to a fresh record.

Economists say the weakness in inflation, if sustained, could put further monetary tightening in jeopardy.

Core retail sales, which exclude automobiles and fuel, decreased by 1.6% in May, compared to forecasts for a 0.8% slide. Wellington and Taipei also saw healthy gains but Shanghai ended off 0.3 percent. Similarly, the year-on-year change rose to 1.5% with the previous figure upgraded from 1.1% to 1.4%.

US retail sales in May recorded their biggest drop in 16 months and the Consumer Price Index unexpectedly fell month-over-month, suggesting inflation pressures could be moderating.

Excluding automobiles, gasoline, building materials and food services, retail sales were unchanged last month after an upwardly revised 0.6 percent rise in April.

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