Here's How Markets Are Reacting to the Fed Policy Meeting

Here's How Markets Are Reacting to the Fed Policy Meeting”

Yellen was nominated in October 2013 for the post, which requires Senate confirmation. But its stimulus efforts that have kept rates near historic lows since 2008 have failed to boost inflation. 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 central bank also expects inflation will remain stubbornly low. This year, it has lagged below the Fed's 2% target and the forecast now suggests it will continue to do so in 2018.

Fed Chair Janet Yellen was set to speak at a news conference at 2:30 p.m., when she might address her future at the Federal Reserve, as her term is set to expire at the end of February. It has raised rates three times since last December, twice this year.

So, it is quite rational on the part of the Fed to signal one more rate hike this year and three rate hikes next year.

John Silvia, chief economist at Wells Fargo, said some investors appeared surprised that the Fed still expects to raise rates by December.

The currency is facing selling pressure caused in part by bets on a hawkish Fed, local political fears and signs of a slower recovery of economic growth.

Given the Fed's statement at its June 2017 policy meeting, the balance sheet reduction should begin gradually at USD 10 billion per month, no longer reinvesting each month a volume of USD 6 billion of maturing Treasuries and USD 4 billion of maturing agency bonds, such as mortgage-backed securities.

Its size reflects bond purchases the Fed made after the crisis struck to try to ease long-term borrowing rates, encourage spending and energize an anemic economy. At this rate, the Fed's balance sheet would still be above $3 trillion by late 2019.

As expected, central bank officials voted to hold the benchmark federal funds rate steady at between 1 percent and 1.25 percent.

The long-awaited reduction in the Fed's $4.5 trillion balance sheet comes amid great uncertainty at the central bank. Restoring the Fed's giant, $4.5 trillion portfolio of bonds and other assets, still bloated from the financial crisis, to normal levels. The jobless rate is just 4.4 percent, near a 16-year low. The caution in raising rates comes as inflation has consistently stayed below the Fed target of 2 percent.

Reducing the massive balance sheet is not without risks. In August, the US jobless rate was 4.4 percent, just above the 16-year low it touched in May and July. Eastern. The Dow Jones industrial average had edged up a mere 0.1 percent.

The Reserve Bank is expected to announce its interest-rate decision on Thursday‚ after the two-day monetary policy committee meeting.

She should be more forthcoming on questions about the outlook for unemployment and inflation and what that means for the pace of rate increases.

Financial stocks have been on a tear in recent days as investors anticipated and then reacted to Fed commentary on rate hikes, which tend to help bank profits.

A string of weak reports on consumer prices had suppressed expectations for another rate hike this year, but that view shifted when data for August showed inflation stabilizing. US stock indexes notched record highs again on Monday, while the Japanese yen and gold weakened.

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