USA stocks wobble after Fed announcement, but close higher

Carla Harmon
September 21, 2017

"We'd be naive if we think that the Fed can downsize their portfolio by $1 trillion in a little more than two years without some bumps". These exceptional monetary policy measures, known as QE (quantitative easing or qe), had been taken after the 2008 financial crisis to boost the economic recovery.

This is still expected to be a gradual reduction as to not trigger a sharp sell-off in government bonds and shock the markets.

Ms Yellen said the hardship caused Hurricanes Harvey, Irma and Maria may hurt growth in coming months but she does not expect it to "materially alter the course of the national economy in the medium term".

"Investors are likely to look past the Fed's interest rate decision and even the plan to shrink the Fed's balance sheet, focusing primarily upon the Fed's forward guidance", said Jingyi Pan, a market strategist at IG in Singapore. The Fed will start thinning out trillions from its balance sheet in October as it works to wind down its bond-buying program.


But caught between a lull in USA inflation and a stronger global economy, the market is uncertain whether the Fed will signal its third interest rate hike of the year or back off until prices rise more briskly.

The US Federal Reserve is expected to hold fire on rates on Wednesday when it concludes its scheduled policy meeting, but should give clues on future moves.

The Fed did stick to its earlier projection of one more rate hike this year, which most analysts have been projecting in December.

"The labor market has continued to strengthen and. economic activity has been rising moderately so far this year", the central bank said in its statement.


In recent days‚ the local currency has come under renewed pressure as the dollar recovered because of improved perceptions that the US Fed could raise rates in December. While this has not triggered an upward movement in interest rates yet, one could easily imagine a bit of a spike if inflation suddenly picks up or the economy accelerates from the 2.0 percent growth trend it has settled into during the recovery.

"At least over the near term, probably between now and the end of October, the market is at risk", he said.

Mr Teshome said the economy should be able to handle the shift as the Fed stops reinvesting proceeds from those holdings.

Minutes from the July meeting showed deepening worries about a prolonged period of low inflation.


The Fed aims for a stabilization of the rise in consumer prices of around 2% per year, a goal which it has been moved back to 2019 instead of 2018, as previously.

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