US Fed's Yellen says has not met with Trump to discuss status

US Fed's Yellen says has not met with Trump to discuss status

US Fed's Yellen says has not met with Trump to discuss status

Policy makers left the benchmark interest rate unchanged in a range of 1% to 1.25%.

The central bank expected the Hurricanes Harvey, Irma and Maris to affect USA economy in the near term, but would not alter the course of the economy in the medium term. Fed's continued stance on the policy rate normalisation is apparently positive for the United States dollar, particularly with respect to emerging market currencies.

However, Fed's 12 month inflation projection is expected to remain below 2 percent. They said they expect three more rate changes next year, two in 2019 and one in 2020. The central bank may signal how likely a rate hike is by December, when some analysts foresee the next increase. The message from the charts is two-fold-one, it shows the extraordinary extent to which monetary policy has been loosened and liquidity unleashed and two, it will be a long road back to normalisation of monetary policy, one that will take years, as Fed chairman Janet Yellen has said.

At the same time the Fed emphasised that near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

Fed Chair Janet Yellen said in a press conference after the meeting that a fall in inflation this year remained a mystery and said the US central bank was ready to change the rate outlook if needed.

The reaction in the Treasury market "suggests a lot of people maybe weren't anticipating the Fed would stick with the third rate hike expectation this year".

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"Though one member noted that easier financial conditions might warrant tighter monetary policy (the conventional wisdom), another floated the more avant-garde view that elevated risky asset prices were a response to markets adjusting to structurally lower neutral interest rates - a factor which the Fed can not control", said Patel.

"A lot of people were thinking (the Fed) would pass in December", said Silvia. After that, the monthly reductions will remain steady.

The Fed said on Wednesday it would begin the years-long process of trimming its $4.5 trillion in assets, majority amassed to encourage investment and growth in the wake of the 2007-09 financial crisis and recession. Yellen said several factors have held inflation down: a job market still healing from the recession, lower energy prices and a strong dollar, which has reduced the costs of imports.

The Fed did lower its projection for its so-called neutral rate. Considering the Fed's balance sheet now stands $4.5 trillion, the Fed is envisioning a slow, multi-year process. The further the interest rates are from the zero lower bound, the bigger will the room be for balance sheet normalization.

The U.S. Federal Reserve will reduce its bond holdings evenly across the maturities of Treasury bonds and, on mortgage bonds, it will continue to focus reinvestments on 15- and 30-year securities. Also, the Fed started buying massive amounts of US government bonds to help reduce long-term interest rates and support growth. Prior to the 2008 financial crisis, the Fed's balance sheet totaled under $1 trillion.

While many investors expect the Fed to announce the start date for allowing securities to roll off the balance sheet (by stopping reinvestment of money earned from maturing securities), Jeremy Spain, bond analyst at wealth manager Charles Stanley, predicted the central bank will keep investors waiting.

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