Stocks inch up, dollar weakens as Fed focus grows

Marco Green
September 22, 2017

In the statement, the Fed set October for the start of their previously announced plan to shrink its US$4.5 trillion balance sheet.

Fed Chair Janet Yellen said in a press conference after the meeting that a fall in inflation this year remained a mystery and said the US central bank was ready to change the rate outlook if needed.

The central bank's rate-setting panel, the Federal Open Market Committee, said Wednesday that it will keep the federal funds rate in a range of 1 percent to 1.25 percent.

Australian stocks recovered from three consecutive losses after finishing higher on Monday, as its financials, consumer discretionary and energy sectors pulled shares higher. Hong Kong's Hang Seng index added 0.4 percent to 28,127.80.

"Higher prices for gasoline and some other items in the aftermath of the hurricanes will likely boost inflation temporarily", the Fed warned in its statement.

And if persistently low inflation begins to accelerate, the Fed could raise rates more quickly. Eight of the 14 dealers responding to a question on the matter said the Fed would allow all of its MBS holdings to mature and roll off the portfolio. If that were to happen, long-term rates might surge undesirably high, which could weigh on the economy.

The Fed highlighted the devastation caused by Hurricanes Harvey, Irma and Maria, which it said are "inflicting severe hardship" on many communities, but said the impact on the United States economy is likely to be felt only in the near term. Investors in China, Japan and South Korea don't believe there will be a war because they perceive a low potential reward with high risk.

Yellen said the recent data breach points to the importance for strong cybsecurity controls - and that the Fed and other regulators are focused on ensuring banks have them in place, she noted.

Following the announcement, bond prices slumped, sending the yield on the 10-year Treasury note to 2.27 per cent from 2.25 per cent late on Tuesday.

For the time being, it seems, absent an obvious explanation, it appears that low unemployment and numbers and gravity-defying asset prices are driving the Fed's desire to pull back policy.

CURRENCIES: The euro was up 0.1 per cent at $1.20 while the dollar fell 0.2 per cent to 111.31 yen.

At the time of writing the AUD USD exchange rate was trending around 0.8006 and the USD AUD exchange rate was trending around 1.2485.

Second-quarter balance of payments data is out this morning and is expected to show the current account deficit remained at 3.1 percent of gross domestic product.

The Nasdaq is up 1,072.93 points, or 19.9 percent. But consistent with its assessment of appropriate policy, while the near-term inflation forecasts were trimmed, the longer term was not. Crude oil futures remained unchanged amid the effects of the hurricanes and WTI crude was virtually the same at $49.89 on the New York Mercantile.

Other reports by Click Lancashire

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