Markets

Fed will start to trim its huge bond portfolio

Fed will start to trim its huge bond portfolio

He added, "Given these latest projections and the broadly unchanged language on inflation in today's policy statement, we now expect the Fed to push on and raise rates again in December".

While some investors said the Fed's tone was more hawkish than expected others were happy Fed Chair Janet Yellen reiterated her stance that balance sheet reduction would be data dependent. Finally, we believe bank stock prices have fully incorporated the benefits of higher interest rates, leaving little upside even if the normalization process happens much faster than we expect. With rates steady at 1-1.25%, that points to one further rate hike this year.

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.

The Fed, as expected, also said it would begin in October to reduce its holdings of U.S. Treasury bonds and mortgage-backed securities acquired in the years after the 2008 financial crisis.

Weak inflation data in the U.S. has prompted investors to dial back their bets on future rate hikes, but the market may be underestimating the Federal Reserve, according to Nick Gartside, worldwide chief investment officer of fixed income at JP Morgan Asset Management.

Gross warned about the potential danger of looming interest rate increases in his July newsletter, noting that raising interest rates will increase the cost of short-term debt that corporations and individuals hold. Energy stocks received a boost from an overnight surge in crude prices (+2 per cent). That is 0.25 percentage points above the current level.




The Dow finished at its seventh straight record Wednesday with banking shares rallying after the Federal Reserve kept alive the chance of a December interest rate increase.

Fed policymakers actually revised up their forecast for economic growth this year to 2.4 percent from a 2.2 percent projection in June.

The advanced telegraphing of the move was created to avoid rattling investors, and financial markets have remained calm as the Fed moved closer to another key step in reversing its unprecedented stimulus policies.

The euro added 0.1 percent to $1.2007, at one stage reaching as high as $1.2022, close to its September 8 high of $1.2092, its strongest since January 2015. In fact, 87.88 percent of Investing News Network readers who voted in a recent poll said the Fed would not increase rates this week.

The Fed news is "kind of consistent with the view that the economy is doing OK, and as far as equity investors are concerned, another rate hike is not going to change that view", Joy said. Bank of America rose 1.4 percent.


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