Fed Holds Interest Rates, Announces ‘Drawdown’

The unemployment rate recently touched a 16-year low of 4.3%, a level typically associated in the past with higher inflation.

US data showing domestic home construction fell for a second straight month in August weighed on the dollar index earlier.

US Dollar Index at hourly intervals. “They also revised down their forecast of future inflation”.

While the U.S. economy and especially its labor market has been relatively strong – unemployment has been below 5% since early 2016 – there has not been much indication that prices are starting to seriously accelerate, which traditionally prompts the Fed to pull back the reins and raise rates. Neel Kashkari, the president of the Minneapolis Fed and a member of the committee that sets monetary policy, has opposed past rate hikes.

And also: Higher interest rates, should they continue, will dampen overall economic growth by weighing on credit creation and consumer confidence.

Above: The dot-plot graph.

This means policymakers expect rates to be lower over the longer term than they did just a few short months ago.

Interest rate futures traders now price in about a 70 percent chance of a December Fed rate hike, up from above 50 percent before the meeting, according to CME’s FedWatch tool.

Source: CIBC Capital Markets report..

Toshiba shed 1.6% after it agreed to sell its memory chip unit to a consortium backed by United States private equity giant Bain Capital for USD18 billion. Those include a flood of new Treasury issuance stemming from the recent deal to lift the debt ceiling, growing prospects of a deficit-increasing tax cut and a move by the European Central Bank to begin curbing its bond buys.

The u.s. federal Reserve (Fed) took the historic decision Wednesday to turn the page of the stimulus money that has sustained the u.s. economy since the financial crisis of 2008 and has proved to be more optimistic for growth this year.

Under the plan announced this week, the Fed 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.

Federal Reserve Balance sheet.

By Wednesday, most Asian stocks showed mixed sentiments as the Federal Reserve’s next announcement comes to a close. In 2018 the Fed sees unemployment moving to 4.1%.

The Fed did stick to its earlier projection of one more rate hike this year, which most analysts have been projecting in December.

Credit Agricole maintain the view that the Dollars would need to see either major fiscal stimulus or a broad acceleration in inflation to post a sustained rally.

-The euro dropped 0.9 percent to $1.1885.

UniCredit’s Silvestre says the Fed’s latest update, “does not change our fundamental stance”. “The natural resistance is that hard number of $1,300”, said Dan Denbow, portfolio manager at USAA Precious Metals and Minerals Fund. Benchmark U.S. Treasury yields jumped to their highest in six weeks, while Wall Street stocks fell after the Fed meeting.