The Australian share market is following Wall Street into the red after the US Federal Reserve flagged a sooner-than-expected interest rate hike, however local shares are being buoyed by positive jobs data.

The ASX 200 followed Wall Street into the red in early trade (-0.5pc) on news that the US Federal Reserve now expected to raise its official interest rate by 2023.

But by 2:15pm, the ASX 200 had made a partial recovery and was closer to 0.2 per cent down.

That was after local jobs data from the ABS showed unemployment is diving below pre-COVID levels.

Financials were buoying the market, and superannuation stock Netwealth was the strongest performer in the top 200 with a gain of 7.2 per cent.

Shipbuilder Austal was also up (+6pc), but that was it gaining back some of what it lost on Wednesday, when it hit a 52 week low.

Mining companies are taking a hit. Whitehaven was down 10 per cent, with Northern Star, Oz Minerals and Ramelius all down more than 3.5 per cent.

Coles was also down 4.3 per cent, after the supermarket told investors it was planning to spend more to make more.

US Federal Reserve's 'surprise hawkish' rates decision

Wall Street's three main indexes all finished in the red, with the Dow Jones losing 0.8 per cent, S&P 500 off 0.6 per cent, and the tech-laden Nasdaq finishing 0.2 per cent down.

That came after the US Federal Reserve said it was likely to raise interest rates by 2023 — a year sooner than widely predicted.

The largely unexpected news came after warnings about mounting inflation in the US.

Its rate has been set at 0.25 per cent during the COVID pandemic, just shy of a historical low set during the GFC.

The potential move higher in interest rates was signalled by 13 out of 18 of its members after a two-day meeting.

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Speaking after the meeting, Fed chair Jerome Powell told reporters that committee members had also begun a discussion about scaling back the central bank's massive bond-buying program.

He said the improved health situation, vaccinations and a better-than-expected economic recovery were affecting the outlook for monetary policy.

The US dollar rose, stocks declined, and yields (interest rates) on 10-year treasuries jumped.

US stocks did somewhat recover in the last hour of trade, however.

Meanwhile, the AUD lost an entire US cent overnight, but its now slightly recovering at 76.30 US cents.

Analysts surprised by Fed's rates hike plan

Principal Global Investors chief strategist Seema Shah said the Fed's comments came "just as the market was getting comfortable with a patient Fed and inflation considerably above target".

"Now it will be up to Powell and other Fed speakers to once again reassure markets that tightening in 2023 doesn't need to be disruptive," she said. 

"There will still be question marks about the timing of tapering but, overall, the dot plot shouldn't unnerve the market too much, as long as Powell gets his communication on target."

NAB analysts described the meeting as a "hawkish surprise".

They noted that most Fed members eventually see the benchmark interest rate rising back to 2.5 per cent, with a minority seeing rate rises as early as next year.

"For 2022, seven out of 18 now see first rate hike (two of whom forecast two hikes, from one previously). The 'long run' median dot remains at 2.5 per cent."

Will Australia's Reserve Bank follow suit?

The US Fed's announcement came just hours before the Reserve Bank of Australia's governor also spoke.

Australia's cash rate has also been at historical lows during COVID and our central bank has been pursuing many similar measures to the US, such as government bond purchases.

Philip Lowe said while it was clear that the jobs market had rebounded post-COVID, Australia was still in "the recovery phase".

He said the Reserve Bank had made no new decisions on the cash rate or bond buying, but indicated it was canvassing a range of different scenarios.

"In some of these, the conditions for an increase in the cash rate could be met during 2024, while in others these conditions are not met," he said.

"The Board will review these scenarios again at its next meeting."

At its June meeting, the RBA said it expected inflation here to temporarily rise above 3 per cent this year, as price reductions introduced during the pandemic are reversed, before quickly falling back below its target.

Official consumer inflation in Australia was running at just 1.1 per cent over the year to March.

Comparably, consumer inflation spiked to 5 per cent in May in the United States, with major increases in prices for used cars, air travel and accommodation.

"At the Reserve Bank Board's next meeting we have two important decisions to make," Mr Lowe said.

"The first is whether or not to extend the yield target from the April 2024 bond to the next bond, which matures in November 2024.

"And the second is whether, and in what form, to extend the bond purchase program once the current program is completed in September."

He said the RBA had already ruled out entirely stopping bond buying in September.

ANZ analysts noted on Thursday that Lowe's wording seemed to be "shifting".

"For us, the most notable aspect of RBA Governor Lowe’s speech was the omission of the words," they said.

"That is: 'is unlikely to be until 2024 at the earliest' that the conditions for a rate hike will be met.

"Instead Lowe said that meeting the conditions, which centre on wages growth being "materially higher", "still seems some way off". 

"We see this as a further evolution of the RBA's forward guidance."