US Fed's Yellen says has not met with Trump to discuss status

Andrew Cummings
September 21, 2017

The Federal Reserve said Wednesday that the USA economy is strong enough for the central bank to begin reducing its $4.5 trillion balance sheet in October, gradually unwinding a massive stimulus program started after the economy entered a severe recession almost a decade ago. The Fed's future actions on interest rates will go a long way toward how much Americans pay to borrow - whether it's for a mortgage, a auto or next month's credit card bill.

The Federal Reserve began a two-day meeting today with analysts split over whether policymakers will formally announce its next step in the so-called normalisation of United States monetary policy. It is expected on Wednesday to announce a milestone in closing the book on the crisis era: that it will start the process of shedding bonds as soon as October.

The S&P 500 is up 8.01 points, or 0.3 percent. Market expectations for a December interest rate hike have risen in recent days, with the CME Group's FedWatch tool reflecting a 62.7 percent probability for at least one additional rate hike by year-end.

They also have lowered their long-run forecast for the benchmark interest rate the Fed controls to 2.8 percent, down from 3 percent in a previous forecast in June.

According to NY Times, the Fed still expects low unemployment and low inflation to sustain for a few more years.

The Federal Reserve is leaving interest rates alone to give the economy room to keep growing.

Still, the Fed said in a statement that prices for gasoline and other items might temporarily spike because of the damage caused by Hurricanes Harvey, Irma and Maria.

About 5.8 billion shares changed hands on USA exchanges.

"The dollar is under pressure ahead of the Fed", said ABN AMRO analyst Georgette Boele.

On Wednesday, the central bank reduced its long-run target for the fed funds rate. That would mean inflation would fall short of the Fed's 2 percent target for the sixth straight year.

Disappointment that the central bank "gave only passing mention to inflation" while continuing to leave near-term rate projections in place likely accounted for selling in the bond market, said Ian Lyngen, head of US rates strategy at BMO Capital Markets.

The Dow is up 2,649.99 points, or 13.4 percent. Ten-year bond rates are essentially the same as they were two years ago, despite the progress in economic measures over the past 24 months.

Earlier, Tokyo's Nikkei surged 2 percent to its highest close in more than two years as investors drew confidence from a weakening yen and hopes of a snap election underpinned the market.

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