The Federal Reserve voted Wednesday to keep key interest rates unchanged after two days of policy meetings in New York City.
The Fed's conviction for its rate hike agenda may soon come to a crossroad.
The big focus is the balance sheet; specifically when and how it reduces the $4.5 trillion in bonds and mortgage backed securities now on its books. It bought the bonds to try to hold down mortgage and other loan rates and support a fragile economy. The Fed began tapering its purchases in 2013 and now wants to actively get rid of the bonds it owns.
The Fed has telegraphed its move for months, and investors are thought to be prepared for it.
The Fed will gradually increase the amount of bonds it allows to mature.
The limit on reinvestment is scheduled to increase by $10 billion every three months to a maximum of $50 billion per month until the central bank's overall balance sheet falls by perhaps $1 trillion or more in the coming years. Earlier this year he took no prisoners in a dressing down of the Fed. It now has to decide how to unwind this money-printing programme without spooking the financial markets. Thus, in recent months, the US-dollar has significantly reduced against major contenders, the euro and the pound sterling. The Fed is now considering when to resume raising rates. The Fed has raised rates twice this year.
She mentioned workers in part-time jobs that wanted full-time work, the number of voluntary quits, low growth rates in compensation and the share of unemployed who hah been out of work six months or longer. Then, policymakers downgraded their forecast for core inflation in 2017 from 1.9% in March to just 1.7%.
The market hopes of another interest rate being implemented before the end of the year were dampened in the past months due to the current inflation rate as well as the ongoing presence and effect of the geopolitical issues between the United States and North Korea.
The CME Group's tracker of investor sentiment puts the likelihood of a rate hike by December at 57 percent. It could also give the Fed an extra tool to help the economy if it were to enter a recession. While the Fed's FOMC is nearly certain to keep policy unchanged, investors will be hoping to gain a clearer picture as to the possibility of a December rate hike.
The main events this week include the Fed statement on Wednesday, and the release of local consumer inflation data, said Rand Merchant Bank (RMB) analyst Michelle Wohlberg.
In addition to forecasting future rate hikes, analysts are trying to divine whether President Donald Trump will re-nominate Yellen to a second four-year term. Her first term ends in February. Contributions of 200 words or more will be considered for publication. So far, Trump has moved to fill only one spot, nominating Randal Quarles, who has yet to be confirmed by the Senate, to the key post of vice chairman for bank supervision.
But it remains to be seen whether central bankers are more concerned about the temporary slowdown, or will brush it off.
President Donald Trump said in July that Yellen is "absolutely" in the running to remain at the helm of the US central bank when her term expires in February.
"There is just a lot of uncertainty", Swonk said.
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