Published: Thu, September 21, 2017
Business | By Max Garcia

Here's the new Fed dot plot

Here's the new Fed dot plot

The Fed pursued three rounds of quantitative easing between 2008 and 2014 to stimulate the economy after the 2007-2009 financial crisis and recession. Consequently, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further.

U.S. Federal Reserve on Wednesday kept the interest rate unchanged, but signaled that there might be one more interest rate hike this year.

New economic projections released after the Fed's two-day policy meeting showed 11 of 16 officials see the "appropriate" level for the federal funds rate, the central bank's benchmark interest rate, to be in a range between 1.25 percent and 1.50 percent by the end of 2017.

Markets have shown no signs of trepidation in advance of the start of the tapering process.

He said: "We would not be surprised to see them give further details on this policy, but we do not expect then to give a firm date on when this will happen".

While some investors said the Fed's tone was more hawkish than expected others were happy Fed Chair Janet Yellen reiterated her stance that balance sheet reduction would be data dependent.

On its Treasury holdings it will decrease first by $6bn per month, increasing in steps of $6bn at three-month intervals until reaching $30bn per month.

U.S. economic data is likely to be affected in the coming weeks, however, by the impact of two hurricanes in the southern USA - most notably in the oil producing region of the Mexican Gulf and the state of Texas. Policymakers have been divided in recent months on the near-term threat of inflation.

The Fed also reduced its outlook for inflation on Wednesday, cutting its expectation from 1.7 percent this year to 1.5 percent, and from 2 percent to 1.9 percent in 2018.

The Standard & Poor's 500 index was up a fraction of a point at 2,507.

Hence, for the moment at least the widely-tracked "dot plot" projections indicated that another hike in 2017 was still a possibility - albeit not a foregone conclusion. So far this week, USA assets have been popular due to expectations of a third rate hike this year in December and further rises into 2019.

It forecasts only two increases in 2019 and one in 2020.

Fed fund rate futures are pricing in about 65 per cent chance of a rate hike by December, the highest level since March, and around 50 per cent before the Fed meeting.

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