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Uncertainty ahead of US Fed meeting announcement

21 September 2017

In the final three months of this year the Fed will reduce its holding of US Treasury debt and mortgage-backed securities by USD 10 billion, and will reduce it by an additional USD 10 billion every three months until October 2018 when the rate hits USD 50 billion a month.

Roughly 6.7 billion shares changed hands on U.S. exchanges compared with the 6 billion average for the last 20 sessions.

America's central bank has stuck to script - or nearly - announcing it will begin to taper the size of its balance sheet next month while keeping the target for its main policy interest rate unchanged at between 1.0% and 1.25%.

Caught between a lull in US inflation and a stronger global economy, the Federal Reserve is expected on Wednesday to signal whether it will raise interest rates for a third time this year or back off until prices rise more briskly. After leaving its benchmark rate at a record low for seven years after the 2008 crisis, the Fed has modestly raised the rate four times since December 2015 to a still-low range of 1 percent to 1.25 percent. "So, despite the storms, we're still confident the USA economy will keep its momentum, because the foundations are sound".

But inflation is still running below that target, even though the job market has picked up and other explanations have fallen away.

US Fed signals one more rate hike this year
He said better than expected United States inflation figures had also fuelled the rate hike expectations. Treasurys remain under pressure, pushing up yields, as investors boost odds for a December rate hike.

In past years, she said the Fed has been able to point to root causes of low inflation: the gap between those employed versus those that aren't, energy prices and a rising dollar. Clues to the answer might come in the policy statement the Fed will issue, in its updated economic forecasts or in the news conference Chair Janet Yellen will hold.

Higher prices for gasoline and some other items "in the aftermath of the hurricanes will likely boost inflation temporarily".

US central bankers are counting on steady growth and low unemployment to raise inflation closer to their goal, which would support their policy of gradual tightening through interest-rate increases and a reversal of quantitative easing.

Fed closes door to another 2017 hike slightly?

USA stock indexes overcame an afternoon wobble to close mostly higher Wednesday after the Federal Reserve said it would start reducing its huge bond portfolio next month and was still on track to raise interest rates later this year.

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"It is too soon for the committee to conclude that the recent slowing in inflation was sufficiently permanent to alter the Fed's plans", Michael Gapen, a Barclay's analyst wrote in a research note.

Investors are also waiting for the US Federal Reserve open market committee's policy statement on Wednesday, which could affect the rand negatively if the Fed's stance becomes more hawkish.

However, the central bank said the economic impact of the storm is likely to be felt only in the near term.

"A lot depends on the data", she says. Yellen's four-year term as chair will end on February 3.

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Uncertainty ahead of US Fed meeting announcement