Economy

US Treasurys higher as investors prepare for Federal Reserve meeting

US Treasurys higher as investors prepare for Federal Reserve meeting”

Citing strength in the USA job market, business investment growth, and "moderate but durable" economic expansion, the Federal Reserve-as expected-left interest rates unchanged at the end of its two-day policy meeting Wednesday.

Crucially for financial markets, the Fed's projections of the path for the federal funds remained essentially unchanged for this year and next - Fed officials still see one more quarter-point increase before the end of this year (probably December), and three such hikes next year.

"Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year". It added that the near-term risks to the economic outlook remained "roughly balanced" but that inflation was being watched "closely". If it goes wrong, it could send stock and bond markets into a tailspin that could spill over into the broader economy.

According to the CME FedWatch, investors have priced in a 70.5% chance of a rate increase in December; two days ago the odds were 56.6%. But in close-to-zero rate territory, QE allows policymakers to buy longer-term bonds at a much larger scale, with the hopes that doing so will also pull down long-term interest rates as well.

Investors were also assessing the likely impact of the Fed's decision to start ending monetary stimulus by reducing its approximately $4.2 trillion in holdings of U.S. Treasury bonds and mortgage-backed securities from October. The balance-sheet expansion was result of the Fed's so-called quantitative-easing programs - buying up financial assets to keep money flowing through the economy.

Five of the 11 major S&P sectors were lower, with the consumer staples index's .SPLRCS 0.74 percent fall leading the decliners.

The U.S. dollar rose against a basket of currencies .DXY after the release of the Fed's policy statement. It now projects even faster growth this year of 2.4 percent, an increase from it forecast of 2.1 percent earlier this year.

He has offered mild praise of Yellen after calling her "obviously political" during the 2016 campaign, insisting she held down interest rates under President Obama to make the economy look stronger than it actually was.

"This implies that in the absence of inflation, there may be little need for additional Fed rate hikes to tighten financial conditions", says Patel. Besides, the Fed hinted that one more interest rate hike may be introduced before the end of the year.

"We were definitely not pricing in another rate hike for this year", Hurley said.

"The BOJ will patiently continue accommodative monetary policy to achieve 2 percent inflation".



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