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23 September 2017, 01:40 | Gordon Grant
Vice Chairman Fischer will retire next month, while Chair Yellen's term ends by the end of January next year.
"Federal Reserve Chair Janet Yellen said stubbornly low inflation this year is something of a * a itemscope="itemscope" itemprop="StoryLink" href="/news/terminal/OWLDGD6TTDS1" class="terminal-news-story" target="_blank" rel="nofollow noopener" *"mystery" to central bankers.
Yellen said policymakers would react accordingly to any negative impacts on the economy, adding that persistently low inflation would likely come to an end.
She said the Fed would adjust its policymaking if it thought the causes of low inflation had become permanent.
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.
There is concern, however, over whether the economy will be able to sustain growth without the Fed's stimulus.
Of course, the noise of the Fed's actions only serves to distract from the real issue, which is the continuing economic stagnation of the United States economy. It has also trimmed its inflation forecast. USA benchmark 10-year Treasury note yields rose as far as 2.29 percent, the highest since August 8., a move which helped push bank stock prices higher also.
Central bankers have been in a bind over when to lift rates again. The Fed's preferred price gauge rose 1.4% in July from a year earlier. Wellington slipped 0.3 percent but Taipei was up 0.6 percent and Manila put on 1.1 percent.
"In the absence of any convincing hawkish signal - such as a reference to another rate hike being "appropriate soon" - we think the Dollars is likely to follow the historical pattern of moving lower in the aftermath of the FOMC meeting", says Viraj Patel, an analyst with ING Bank N.V. based in London.
"While the median 2017 dot is still set to tentatively pencil in a December rate hike, we expect to seemore members calling for a pause for the remainder of the year", says Patel. They now expect there will likely be two hikes, down from three.
This morning the Federal Reserve delivered on its promise to reduce its $4.5 trillion portfolio by allowing $10B in bonds to mature in October, without replacing them.
The balance sheet primarily consists of government and mortgage-backed bonds.
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. The current expansion is now in its ninth year, one of the longest periods of growth in USA history.
On Wednesday, the Fed left rates unchanged, hovering between 1% and 1.25%. Chart 2 shows the real policy rate for their central banks.
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. Some banks are expecting the Federal Reserve to announce that QT will begin in October, but the pace will still be a key detail.
Wednesday's move to unwind its massive bond holdings is yet another sign of the Fed's confidence in the economy. 1, but the Fed is unlikely to raise rates any sooner than its final meeting of the year, in mid-December.
Those sales are expected to exert modest upward pressure on long-term rates, like mortgages.
Markets anticipated the balance sheet unwinding and have been quiet so far on Wednesday.
U.S. stocks initially fell after the announcement, but pared losses by the end of the day, with both the Dow and the wider S&P 500 closing at new highs. The consumer staples index.SPLRCS was the biggest decliner, down 0.97 percent drop. "Our balance sheet is not meant to be an active tool for monetary policy in normal times", Ms. Yellen emphasized Wednesday, adding that "we therefore do not plan on making adjustments to our balance-sheet normalization program".
In late 2015 the central bank hiked rates for the first time since the 2007-2009 financial crisis and recession.
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