Декабря 12, 2017


Fed's stance praised as United States stimulus end in sight

23 Сентября 2017, 01:40 | Frank Carlson

The Fed, as expected, also said it would begin in October to reduce its approximately $4.2 trillion in holdings of U.S. Treasury bonds and mortgage-backed securities acquired in the years after the 2008 financial crisis.

"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", said the Fed in a statement after concluding its two-day monetary policy on Wednesday, Xinhua news agency reported.

The economy expanded at a 2.1% annual rate in the first half, in line with the pace during this expansion, and US government 10-year notes yield about 2.24%, down from 2.45% at the start of the year.

USA 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.

Yellen told reporters at a news conference that she would adjust Fed policy if she thought the causes of low inflation were permanent.

Weak inflation data in the USA has prompted investors to dial back their bets on future rate hikes, but the market may be underestimating the Federal Reserve, according to Nick Gartside, global chief investment officer of fixed income at JP Morgan Asset Management. At this rate, the Fed's balance sheet would still be above $3 trillion by late 2019. Market odds for a December rate hike has increased to 60 percent probability (from 50 percent earlier).

Yellen said that she hadn't spoken recently with President Trump and wouldn't say whether she'd like to return to lead the Fed, or if he'd reappoint her as chairwoman. The reduction in assets will be slow - just $10 billion a month to start.

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Policymakers have signalled their plans for the Fed balance sheet for months in an effort to avoid rattling markets.

Benchmark U.S. Treasury yields jumped to their highest in six weeks. While the unemployment level remained relatively stable at 4.4% in August, inflation has remained below the 2% target.

The central bank announced its decision Wednesday afternoon after two days of meeting in Washington - opting to keep the short-term target range at 1-1.25 percent.

The central bank, which began its bond-buying program to drive down borrowing costs in the wake of the financial crisis, is now convinced that the economy is strong enough to operate without that level of government support.

In October, the committee will start unwinding its $4.5 trillion balance sheet by cutting up to $10 billion each month from maturing securities it reinvests. If that were to happen, long-term rates might surge undesirably high, which could weigh on the economy.

Central bankers have been in a bind over when to lift rates again.

"While we do not expect U.S. yields or the United States dollars to move much on what would be a well-telegraphed balance sheet announcement this week, there is a non-trivial risk of the Fed delaying this process". Ms. Yellen told reporters that "because the neutral rate now appears to be quite low by historical standards, the federal-funds rate would not have to rise much further to get to a neutral policy stance".

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