Published: Wed, September 20, 2017
Economy | By Annette Adams

Stocks May Lack Of Direction Ahead Of Fed Announcement

Stocks May Lack Of Direction Ahead Of Fed Announcement

Wall Street opened little changed on Wednesday as investors waited for the conclusion of the two-day Federal Reserve meeting for indications of a third interest rate hike this year.

"There's no reason not to start normalizing policy".

Currently, when assets mature the Fed is paid the principle from the maturing bond which it then uses to reinvest in new bonds, topping up its holdings, however, this is likely to be discontinued, so that the balance sheet can be reduced. At this rate, the Fed's balance sheet would still be above $3 trillion by late 2019.

Traders were betting on a 56.4 percent chance of a December hike, compared with 46.8 percent a week ago, according to the CME Group's FedWatch tool.

That said, the accompanying statement may offer the details of how the central bank plans to start shrinking its $4.5 trillion balance sheet. Over the years, it has worked well enough to help cut the unemployment rate to its current low of 4.4 percent.

Fed officials are widely expected to leave rates unchanged as they announce a start date for the gradual unwinding of the USA central bank's $4.5 trillion balance sheet. As the jobless rate improved, interest rates have been raised, but remain below historic averages.

Another rate hike is unlikely this time around as the disruptions caused by Hurricanes Harvey and Irma have distorted the overall picture of the United States economy (witness the spike in initial jobless claims in what has been an otherwise uninterrupted downtrend). In a speech two weeks ago, Dudley reaffirmed his desire to see a December rate increase even after he acknowledged the last few months of soft inflation readings. As a result, financial markets are unsure whether the Fed will raise rates again before year's end.

The currency is facing selling pressure caused in part by bets on a hawkish Fed, local political fears and signs of a slower recovery of economic growth. The funds rate effects what people pay on things like mortgages and credit cards.

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.

The seven-member Fed board will soon have four openings, after the announcement this month by Stanley Fischer that he is stepping down as vice chairman.

The only other potential choice for Fed chair Trump has mentioned is Gary Cohn, a former Goldman Sachs executive who leads the president's National Economic Council.

But it remains to be seen whether central bankers are more concerned about the temporary slowdown, or will brush it off. "I don't know if the Fed has much love for Trump", he said, adding that the Fed had the markets' back during the Obama Administration. That's a lot of turnover and uncertainty.

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