Fed keeps rates steady, to start portfolio drawdown in October

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The Fed's profitability has allowed its budget to grow 4.1 percent per year between 2007 and 2017, compared to 2.4 percent for the federal government. A decline in estimates of this measure would help Yellen to explain why the steep drop in the jobless rate had failed to spur inflation as expected so far.

"One of the macroeconomic consequences of Harvey that's still playing out is the cost to energy markets".

Click to Enlarge The short-term Treasury bond market is behaving as we would expect in this environment, pushing up to levels not seen since 2008 in anticipation of tighter monetary conditions and higher inflation - which is the outlook the Fed maintains. But its stimulus efforts that have kept rates near historic lows since 2008 have failed to boost inflation.

Assessments of the impact of QE vary, but many economists take the view that it has helped the United States economy.

It is expected to keep rates on hold, but investors will be watching for fresh hints on the chances of another rate rise this year and how many could be expected in 2018.

Forecasts for economic growth and unemployment into 2018 and beyond were largely unchanged.

Federal Reserve officials set an October start for shrinking their $4.5 trillion stockpile of assets, moving to unwind a pillar of their crisis-era support for the economy. It has also trimmed its inflation forecast.

Fed officials predicted that inflation would rebound modestly next year, approaching the Fed's target of a 2 per cent annual pace. "The central banks hate visibility, and the size and composition of the balance sheet makes it very hard".

The 10-year yield /quotes/zigman/15866666/realtime TMUBMUSD10Y is up 2.272%, a rise of 2.4 basis poitns on the day and up from 2.236% ahead of the announcement.

Fed officials also expect both low unemployment and low inflation to persist over the next several years, a curious combination that economists are struggling to understand.

The announcement is a third big policy step for Janet Yellen, now in the final year of her term as Fed chair: She has overseen the end of large-scale asset purchases; the liftoff of rates from zero; and now the pullback from an unprecedented balance- sheet buildup without disruption to financial markets or the economy so far.

Markets have shown no signs of trepidation in advance of the start of the tapering process, which the Fed already announced will proceed at a fixed monthly level that can be adjusted as needed to be either faster or slower.

The Fed chose to keep American interest rates on hold at 1-1.25 per cent, as widely predicted.

Stocks are inching mostly lower on Wall Street 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.

EUR/USD fell to a fresh low for the day at 1.1862 as the Yellen press conference moved along. Raising rates too quickly could risk hobbling the recovery. Eastern Time. The Dow Jones industrial average edged up 14 points, or 0.1 percent, to 22,385.

US stocks are wavering between small gains and losses Wednesday afternoon as investors size up the Federal Reserve's latest economic and interest rate policy update.

The U.S. Federal Open Market Committee on September 20 said the Federal Reserve would start reducing its $4.5 trillion balance sheet in October.

The Fed is widely expected to leave rates unchanged on Wednesday night‚ but is expected to give signals on future policy moves.

While some analysts are looking ahead to interest rate projections for 2020, it is worth noting that it is unclear who will be leading the Fed at that time.

The Fed's next meeting is scheduled for October 31- November 1, but the Fed is unlikely to raise rates any sooner than its final meeting of the year, in mid-December.

MARKETS OVERSEAS: In Europe, Germany's DAX rose 0.1 per cent, while the CAC 40 in France added 0.1 per cent.

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