Fed asset-shrinking to start next month; rate hike seen in '17

Fed asset-shrinking to start next month; rate hike seen in '17”

At her news conference, Yellen declined to say whether she would like to serve a second term. To top it off, President Trump is rumoured to be making his long awaited tax reform proposals on Friday. But he has also said he is considering other candidates, notably Gary Cohn, head of Trump's National Economic Council. Yellen's four-year term as chair will end on February 3. Yellen was nominated in October 2013 for the post, which requires Senate confirmation.

Zandi said with the unemployment rate "falling dramatically" and nearing four percent, inflation eventually will follow.

Some economists say they think that by then, inflation will finally have begun to increase and weakness caused by the hurricane disruptions will have started to fade and that the Fed will conclude that the economy can withstand a further slight tightening of credit. Lower rates promote growth.

On Wednesday, the Fed announced it would begin the reductions next month based on a plan approved in June.

The consumer staples sector.SPLRCS fell 0.9 percent while the utilities sector.SPLRCU ended 0.8 percent lower. Inflation has stalled, and prices are now rising just 1.4 percent annually. It has also trimmed its inflation forecast.

Fed members also said that they now project faster growth for 2017, with a median forecast of 2.4 percent gross domestic product growth, versus a June projection of 2.2 percent.

Yellen earlier this year blamed temporary factors, such as the introduction of cheaper mobile phone plans, for the persistence of undesirably low inflation. China's Shanghai Composite Index gained 0.3 percent to 3,366.00.

Along with the policy statement Wednesday, Fed members will release their forecasts for the economy and the course of interest rates, which could give a clearer picture of the sentiment in the central bank.

Meanwhile, 12 out of 16 Fed officials said they expect one more raise in short-term interest rates this year, the Wall Street Journal reported.

The reaction in the Treasury market "suggests a lot of people maybe weren't anticipating the Fed would stick with the third rate hike expectation this year". In light of recent low inflation readings, some of the policymakers could lower their funds rate projections modestly for 2017 through 2019.

Three stocks rose for every two that fell on the New York Stock Exchange.

The balance sheet primarily consists of government and mortgage-backed bonds.

"You could see mortgage rates going up as a result of them (reducing) their balance sheets", he said. That figure would inch up by $10 billion each quarter until it reaches $50 billion in monthly reductions in October 2018.

Investors are eagerly expecting the Federal Reserve to announce the first steps toward unwinding its $4.5 trillion balance sheet.

Stocks had been mostly flat ahead of the Fed statement, while the dollar had been trading slightly lower. MSCI's gauge of stocks across the globe shed 0.25 percent.

Those sales are expected to exert modest upward pressure on long-term rates, like mortgages.

This information will be updated as appropriate to reflect decisions of the Federal Open Market Committee or the Board of Governors regarding details of the Federal Reserve's operational tools and approach used to implement monetary policy.

"We previously expected the Fed to hike interest rates again in December, but the continuing weakness in core inflation had left the chances of a move before year-end as little more than a coin toss and other recent developments have all but killed the possibility", Capital Economics wrote in a recent note.

The dollar was 0.4 percent higher at 112.610 yen after brushing 112.725, its highest since July 18.

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