Key rate stays as is, Fed decides

Randall Padilla
September 23, 2017

U.S. Treasury prices were little changed Thursday, leaving the 2-year Treasury yield near an nearly nine-year high after the Federal Reserve on Wednesday indicated that it still plans to deliver another rate increase in 2017.

Europe market opened tad higher on Thursday as the Federal Reserve announced its plan to start unwinding its balance sheet and hinted that the Fed will be introducing another interest rate hike in the current year.

Of course, the noise of the Fed's actions only serves to distract from the real issue, which is the continuing economic stagnation of the United States economy.

According to Sweet, the Fed's GDP forecast for growth this year could be revised slightly higher.

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

The Fed said it continues to expect inflation to remain at 1.6%, below its target, and the unemployment rate to be 4.3%, based on its updated economic projections.

Federal Reserve Chair Janet Yellen said Wednesday she has had no further meetings with US President Donald Trump on whether she will stay on as head of the central bank.

Over the last decade, the Fed headed into unknown policy terrain as it snapped up some $3.6 trillion in mortgage and Treasury bonds in an effort to spur riskier investing and economic growth.

Others, however, believe the Fed will stick by its clearly laid out plans, and move forward with the rate increase this year, followed by three more in 2018.

"The market doesn't expect anything earth-shattering from the meeting but there are risks on both sides", Greg McKenna, chief market strategist at AxiTrader, said in a commentary.

The Dow Jones finished Wednesday up 41 at 22,412 - a new record - after the Fed left interest rates on hold this month, but the prospects remains it will happen this year. A critical question is whether the Fed has grown troubled or confused about chronically low inflation. Yellen said several factors have held inflation down: a job market still healing from the recession, lower energy prices and a strong dollar, which has reduced the costs of imports. Also, the Fed started buying massive amounts of USA government bonds to help reduce long-term interest rates and support growth. But its stimulus efforts that have kept rates near historic lows since 2008 have failed to boost inflation. The yield on the 10-year Treasury note rose to 2.28 percent.

It comes as the U.S. central bank announced that after almost a decade it would actually start to cut the size of its $4.5 trillion asset portfolio starting this October.

The bank did lower its projection for its so-called neutral rate.

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. Yet the Fed's decision to begin winding down one of its most controversial policies of the crisis era, which attracted sharp criticism from congressional conservatives and economic purists over the last decade, amounted to a bold bet on the US economy's prospects. They continued to forecast one more interest-rate hike later this year, saying storm damage will have only a temporary impact on the economy.

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