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Fed meeting: 3 things to watch for in Yellen's statement

23 September 2017, 01:41 | Melanie Burgess

Ascribing to the speculations, the USA central bank stated that it will start the cutting on its massive holding of the US Treasury and mortgage-backed securities in October this year.

The central bank has raised that rate three times since December as the economy has gradually improved.

The Fed's policymaking committee approved its action on a 9-0 vote after ending its latest meeting.

Before the Fed's announcement, the Dow Jones Industrial Average was up 20 points, with the expectation the rate would not change.

The Federal Reserve has said that it will start to run down some of the investments it made to boost the United States economy after the financial crisis. "Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term".

"A lot of people were thinking (the Fed) would pass in December", Silvia said.

Federal Reserve Board Chairwoman Janet Yellen on Wednesday declined to say whether she expected to be leading the central bank after her first term ends in February 2018.

Federal Reserve Chair Janet Yellen is staying mum about whether she wants a second term as the head of the US central bank.

Clearly, if the "dots" do move lower, it will negatively impact on the Dollar, which is highly correlated to Fed Fund rate expectations.

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In past years, she said the Fed has been able to point to root causes of low inflation: the gap between those employed versus those that aren't, energy prices and a rising dollar.

"Hurricanes Harvey, Irma, and Maria have devastated many communities, inflicting severe hardship". The reduction in assets will be slow - just $10 billion a month to start.

In response to the Great Recession in 2008, the Fed built up its portfolio of government and mortgage-backed bonds.

Markets ended Tuesday's session higher, with financial stocks providing the biggest impetus ahead of the Federal Reserve's statement and press conference on Wednesday.

Those sales are expected to exert modest upward pressure on long-term rates, like mortgages. Fed officials have predicted the overall portfolio could shrink to between $2.5 trillion to $3.5 trillion by early next decade, though they have stressed there is no need to decide any time soon.

USA central bankers are counting on steady growth and low unemployment to raise inflation closer to their goal, which would support their policy of gradual tightening through interest-rate increases and a reversal of quantitative easing.

Yellen will also assess the health of the economy, a key indicator that could predict whether the Fed will stay on track with future policy projections. That's the point at which its benchmark rate is neither stimulating economic growth nor restraining it.

The central bank has felt confident to raise rates because it appears to have met one of its key mandates: Maximizing employment. But they predicted that inflation would not rise above that 2 percent target even though they expect unemployment to remain well below the level that would usually result in inflation. Should markets react negatively, as they did when Bernanke hinted at reducing their purchases in 2013, the markets have reason to expect the Fed to act.

Some Fed officials have questioned whether the central bank should continue raising rates, which it typically does to forestall inflation, at a time when price growth remains so low.

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