Fed will start modestly reducing its bond holdings

Fed will start modestly reducing its bond holdings

Fed will start modestly reducing its bond holdings

What is the US Federal Reserve doing?

But the central bank did take historic action on Wednesday: It will begin undoing the extraordinary steps it took to prop up the economy for nearly a decade after the financial crisis.

Under the plan the Fed announced, it will start to allow a slight $10 billion in holdings to roll off the balance sheet each month - $6 billion in Treasurys and $4 billion in mortgage bonds.

Fed officials continue to expect the United States economy to expand at a moderate pace in the future.

They began by buying up mortgage-backed securities, the very financial instruments that triggered the financial crisis.

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.

"The Fed has firmly signalled that a December rate rise is still on the table". Fed officials continue to forecast three rate hikes in 2018 with interest rates expected to peak at 2.9% in 2020. Raising rates too quickly could risk hobbling the recovery.

FOMC (Federal Open Market Committee) in its policy statement, released yesterday, reposed confidence in the improvement of the USA economy.

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.

Hurricane's Harvey and Irma have left a slough of destruction in the wake, all of which will impact on economic growth and will favour a cheaper borrowing climate to rebuild, encouraging the Fed to stand still on rates.

"We feel the economy is performing well and we have confidence in the outlook", Ms Yellen said.

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But inflation is still running below that target, even though the job market has picked up and other explanations have fallen away.

The Federal Reserve's Federal Open Market Committee (FOMC) wraps up their sixth meeting of the year today with a written statement at 2:00pm followed by a Janet Yellen press conference at 2:30pm.

Yellen earlier this year blamed temporary factors, such as the introduction of cheaper mobile phone plans, for the persistence of undesirably low inflation. For the year 2018, the median target is 2.125 percent, unchanged from the last meeting, implying three rate hikes of 25 bps each.

Central bankers have been in a bind over when to lift rates again.

But Central bankers have a hard juggling act to maintain against inflatioin and economic growth.

Fed officials cautioned that they do expect inflation to be higher than normal - at least for a little while - following the hurricanes that have devastated Texas, Florida and now Puerto Rico.

The main events this week include the Fed statement on Wednesday, and the release of local consumer inflation data, said Rand Merchant Bank (RMB) analyst Michelle Wohlberg.

Overall the Fed meeting re-emphasized that policy normalisation is expected to remain on course. Economists had also forecast that Fed policy makers would maintain their projection for one more rate increase this year, and take that action in December.

Mr Teshome said the economy should be able to handle the shift as the Fed stops reinvesting proceeds from those holdings.

Yet Yellen and her predecessor, Ben Bernanke, have largely brushed off those concerns with a gradual and sometimes halting march to a more normal policy stance.

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