Markets

Fed announces a start to modestly reducing its bond holdings

Fed announces a start to modestly reducing its bond holdings

The Fed's Open Market Committee announced Wednesday that rates would remain unchanged between 1% and 1.25%.

Since officials met in July, the unemployment rate has held near a 16-year low but inflation has stayed soft, challenging the expectation of top officials including Fed Chairwoman Janet Yellen that a deceleration in price pressures this spring would prove transitory.

"Relative to the June forecasts there may be more participants anticipating no more hikes this year, but we don't think so many will switch to this view as to bring down the median", said Michael Feroli, chief USA economist at JP Morgan.

USA bond yields rose, pushing up the US dollar after the Fed's decision, but US benchmark stock indexes were little changed.

The US dollar index climbed to about 92.60 minutes after sitting in the red around 91.63 earlier in the day.

The dollar built on gains against the yen Thursday after the Federal Reserve unveiled plans to wind down its crisis-era stimulus and hinted at another interest rate hike before the end of the year. Sterling, which has jumped in recent days after the Bank of England said interest rates were likely to rise in coming months, gained a further 0.4 percent to $1.3528 GBP=D3 in response to forecast-beating retail sales data. Economists have pointed to December as the likely time for the next rate hike, and new projections from Fed policymakers indicate another rate hike remains likely before the end of the year. "I can't say I can easily point to a sufficient set of factors that explain this year why inflation has been as low", she said.

"We do see [it] as one of the most significant risks to the financial sector", said Yellen.

To avoid spooking investors, the Fed's plan for shrinking its balance sheet is so gradual that the total would remain above $3 trillion until late 2019.

US Fed raises rates for second time in three months
Fed conflicted by weak US inflation, global economic rebound

"It's past time to reduce the Fed's balance sheet because its role in the economy is unnecessarily large", said Tate Lacey, an economist at the Cato Institute, a libertarian think tank that has criticized the Fed for bulking up its balance sheet so much.

Fed officials have been signaling for months that they planned to start reducing the Treasury bonds and mortgage-backed securities the central bank began buying in 2008 to try to stimulate growth by pushing down mortgage and other long-term interest rates.

In its policy statement, the Fed took note of Harvey, Irma and Hurricane Maria, which it said had devastated many communities.

Markets anticipated the balance sheet unwinding and have been quiet so far on Wednesday.

Markets in Asia closed mixed, with Japan's Nikkei Stock Average jumping 2% to its highest close since August 2015 and Hong Kong's Hang Seng Index falling 0.4%.

However, 12-month inflation is still expected to remain below the Fed's two percent goal in the near term, stabilizing at the target rate only in the medium term.

Stocks had been mostly flat ahead of the Fed statement, while the dollar had been slightly lower.

On oil markets, both main contracts dipped following an nearly two percent rally Wednesday on data showing USA gasoline stockpiles had fallen to a 22-month low, while speculation circulates that Nigeria and Libya will join the OPEC-Russia production cuts.

Rohingyas are not terrorists, nor a threat to India's security: Refugee
The situation could have an impact on Myanmar´s transition and risked creating "a more significant terrorism problem". Buddhist-majority Myanmar denies ethnic cleansing, saying its security forces are tackling Rohingya terrorists.


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