December 16 2017

The End of US Quantitative Easing

December 16 2017, 04:54 | Clarence Walton

3 things to watch for from the Federal Reserve on Wednesday

US Federal Reserve to start unwinding $4.2tn stimulus from October

Over the past decade we have been used to central banks buying bonds each and every day. She met several months ago with Trump, who spoke favorably of her afterward, but Yellen said she hasn't spoken with Trump since.

The Fed's interest rate policy can have an impact on mortgage rates and cap rates, and by extension property prices.

As a result, Asian central banks are not expected to mirror the Fed rate cycle as closely as in the past. It has raised them four times since the end of 2016.

I expect the USD/JPY to continue to be mostly driven by the direction of U.S. Treasury yields and demand for higher risk assets.

"We expect Asian central banks to remain accommodative". "[Fed Chair] Ben Bernanke and company were then literally at a crossroads", he says. At its previous meeting in July, it also declined to raise its benchmark interest rate.

No Fed officials dissented on the decision. That helped stabilize the market for those securities and revive the housing market. As the demand for the agency MBS and Treasurys decreases with the Fed pullback, it may put pressure on rates. We also decided that in October, we will begin the balance sheet normalization program that we outlined in June.

In October, the committee will start unwinding its $4.5 trillion balance sheet by cutting up to $10 billion each month from maturing securities it reinvests. The move will gradually increase long-term borrowing rates. That has now changed and when the programme gets up to speed the Fed will be reducing its balance sheet by $600bn a year. The Fed policymakers' updated economic forecasts show an expectation for three more rate hikes in 2018.

"In my view, they need to normalize policy", he said. NPR's John Ydstie reports. Rates had previously been cut to a record low after the 2008 financial crisis, helping to fuel a multiyear global stock boom.

At a news conference Wednesday, Yellen said the Fed still believes that persistently low inflation is temporary.

Central bankers are in a bind. The aim was to revive the housing sector.

The 2-year Treasury note yield TMUBMUSD02Y, -0.55% the most sensitive to Fed policy shifts, was little changed at 1.443%, after hitting its highest level since November 3, 2008, according to WSJ Market Data Group. The above-described gradual balance sheet adjustment by the Fed is slow, tiny per month and overall rather modest in comparison to the size of the United States bond market.

"We think the recovery is on a strong track".

Fed Chair Janet Yellen told reporters Wednesday that the easing efforts did its job, with studies suggesting that it may have lowered mortgage rates by a full percentage point.

The Federal Reserve voted Wednesday to keep key interest rates unchanged, but plans to reduce its U.S. Treasury bonds holdings next month. Still, no one is sure how the financial markets will respond over the long run. Those markets reacted calmly to the Fed action today.

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