The dollar is hovering in suspense ahead of the Fed

23 September, 2017, 01:42 | Author: Franklin Nunez

Then there are geopolitical jitters emanating from North Korea and the recent departure of deputy governor Fischer means the Fed could be in peril of having its "head lopped off" when Janet Yellen's term also comes to an end in January 2018.

Speculation has swirled around the prospect of Trump's forgoing her reappointment and instead going with a pick of his own, such as his economic advisor Gary Cohn (though the likelihood of a Cohn appointment is seen as having dwindled ). The only other potential choice for Fed chair Trump has mentioned is Gary Cohn, a former Goldman Sachs executive who leads the president's National Economic Council.

The clock is ticking on Trump to pick a Fed chair and provide a continuity in leadership. "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. This includes a job market still healing from the Great Recession, lower energy prices and a strong dollar that reduced the costs of imports.

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. While the unemployment level remained relatively stable at 4.4% in August, inflation has remained below the 2% target.

Yellen told reporters at a news conference that she would adjust Fed policy if she thought the causes of low inflation were permanent.

"Hurricanes Harvey, Irma, and Maria have devastated many communities, inflicting severe hardship". It has also trimmed its inflation forecast.

The bank did lower its projection for its so-called neutral rate. The 30-year bond yield TMUBMUSD30Y, -0.20% traded 1.4 basis point lower at 2.807%, compared with 2.821% in the prior session.

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EUR/USD fell strongly down nearly 1%, below 1.19, while the GBP gave up most of its gains to dip just underneath 1.35.

The Fed is not expected to hike rates at this meeting, although investors will be waiting to hear whether the central bank might change its timeframe for upcoming rate increases. They now expect there will likely be two hikes, down from three. The Fed announced that it will begin reducing bond reinvestments, starting by United States dollars 10 billion per month and growing to USD 50 billion.

The balance sheet primarily consists of government and mortgage-backed bonds.

Policymakers have signalled their plans for the Fed balance sheet for months in an effort to avoid rattling markets.

Oil prices flirted with multi-month highs, despite a rise in USA crude inventories, after the Iraqi oil minister said OPEC and its partners were considering extending or deepening output cuts, ahead of the planned meeting between OPEC and non-OPEC nations on Friday.

On Wednesday, the Fed left rates unchanged, hovering between 1% and 1.25%.

The central bank announced its decision Wednesday afternoon after two days of meeting in Washington - opting to keep the short-term target range at 1-1.25 percent. As a result, financial markets have seemed unsure about whether the Fed would raise rates again before year's end. The Fed reiterated that interest rates are likely to rise at a "gradual" pace, though updated forecasts indicated that officials see the path as less steep than before.

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Referring to the Fed's projection of member's expectations of future interest rates, illustrated in a dot plot diagram on the Fed's website, where dots represent each of the 16 voting and non-voting Fed member's projections of future interest rates, he suggests the main clusters of dots - or median expectation - may drop.

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

USA stocks were resilient, finishing the day close to record highs, A potentially surprising outcome given the fact that U.S. rate hike probability for December jumped to around 60%.

The Dow Jones industrial average rose 17 points, or 0.1 percent, to 22,388.

Financial markets are largely subdued as investors remain cautious ahead of the Federal Reserve's announcement of its monetary policy meeting.

The US Federal Reserve has kept its interest rate unchanged but announced that it would start unwinding its Dollars 4.5 trillion balance sheet from October, a further step to end the loose monetary policy.

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