Economy

Fed to begin modestly reducing bond holdings

Fed to begin modestly reducing bond holdings

It is, in a way, a kind of mini rate hike.

The markets will have to absorb a lot more when the European Central Bank ($5.2-trillion) and the Bank of Japan ($4.6-trillion) start whittling down their enormous positions. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.

The Fed now says the slow unwinding of that stimulus will begin in October. Doing so, even gradually, will likely make some long-term loans, like mortgages, costlier.

The Fed has telegraphed its move for months, and investors are thought to be prepared for it. 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. "The Fed has laid out a roadmap, and there is really a sense of relief to finally get it started".

Abolish militant safe havens, Afghan President tells Pakistan
He said that joint Afghan-U.S. forces were making headway against their opposition, "hitting them hard and hitting them effectively".

As expected, the Fed said it will begin shrinking its bloated USD4.5 trillion portfolio in October by allowing USD10 billion in bonds to mature without replacing them.

"In my view, they need to normalize policy", he said.

While the decision to shrink the Fed's balance sheet is much expected, when and how the Fed will manipulate its target for short-term interest rates is less clear. In July, the core personal consumption expenditure (PCE) index, Fed's favor inflation indicator, rose only 1.4 per cent year on year, below Fed's two percent target and also lower than the 1.9 per cent in January.

The unemployment rate is forecast to remain at 4.3 percent this year before falling to 4.1 percent next year and remaining there in 2019.

Rouhani: Iran to boost missile capabilities
Trump called on world powers to pressure Iran to stop developing missiles and cease supporting regional militant groups. Similar parades with Iranian army units and Revolutionary Guard forces were held in other Iranian cities.

But the central bank has been going backward in trying to meet its other mandate of stabilizing prices at an annual inflation rate of 2 percent over time.

The "dot plot", part of the FOMC's Summary of Economic Projections, indicated that the central bank saw rates rising to between 1.25% and 1.5% by the end of the 2017, pointing one further rate hike this year.

The CME Group's tracker of investor sentiment has put the likelihood of a rate hike by December at 56 percent.

"Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term", Fed policymakers said in their statement on Wednesday.

Furious pilot reveals the real cost of working for Ryanair
The airline says it will cancel as many as 50 flights a day for six weeks because it "messed up" when scheduling crew holidays. All affected passengers received an email notice on Monday September 18, advising them of their alternative options.

Yellen said the recent data breach points to the importance for strong cybersecurity controls - and that the Fed and other regulators are focused on ensuring banks have them in place, she noted. Presidential economic adviser Gary Cohn, a prior favorite for Fed chair, appears to be on the outs with the president after criticizing the administration's response to violence from white supremacists in August in Charlottesville, Virginia. One vacancy about to open is the seat of Vice Chairman Stanley Fischer, who is stepping down next month. Her term expires early next year, and it's unclear if President Trump will reappoint her to the job.


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