USA yield curve flattens, stocks dip as rate views adjusted

22 September, 2017, 01:32 | Author: Leticia Walters
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The Fed would probably start reducing its balance sheet by 10 billion dollars a month starting from October and very slowly increase the speed of the reduction next year. After the 2008 financial crisis and ensuing recession, the Fed took the unprecedented step of beefing up its holdings of government bonds and mortgage-related securities from US$900b to US$4.5 trillion in an effort to turn the economy around.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Fed officials cautioned that the devastation of Hurricanes Harvey, Irma and Maria would hold back the USA economy in the "near term".

On Wednesday, after gold prices settled, the US central bank indicated it still plans to raise interest rates once more by the end of the year, with three more hikes potentially coming in 2018. Officials also said they plan to start unwinding the at the USA central bank's $4.5 trillion balance sheet next month by reducing its bond holdings, which will gradually increase long-term borrowing rates. The Nasdaq Composite fell five points, or 0.08%, to 6,456, with Apple Inc (AAPL.O) as its biggest drag.

Canada has already raised interest rates twice in recent months, while the Bank of England shocked many last week by flagging its own coming increases.

Analysts said market will also be looking for clues of whether the Fed will raise rates in December.

The S&P's record came less than four months after it closed above 2,400 and brought 2017's gain to almost 12 percent.

The metal has fallen four per cent since hitting a more than one-year high of $US1,357.54 earlier this month, as the USA dollar recovered from lows and as fading concerns over North Korea's nuclear ambitions cut demand for bullion as a haven from risk.

With it being considered aprevious conclusionthat United States interest rates will be left unchanged in September, much attention will likely be directed towards the Fed's forward guidance, for clues on future monetary policy. Over the years, it has worked well enough to help cut the unemployment rate to its current low of 4.4 percent.

While the decision to shrink the Fed's balance sheet is much expected, when and how the Fed will manipulate its target for short-term interest rates is less clear.

The Nikkei 225 index rose 1.96%, or 389.88 points, to end at 20,299.38, its highest since August 2015, after a weaker yen lifted exporters. "The resultant stronger US dollar puts a further dent into sentiment, increasing the relative price of the precious metal".

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