Fed keeps US rates steady, to start portfolio drawdown in Oct

WASHINGTON: The US Federal Reserve left interest rates unchanged but signalled it still expects one more increase by the end of the year despite a recent bout of low inflation.

The Fed, as expected, also said it would begin in October to reduce its approximately $4.2 trillion in holdings of US Treasury bonds and mortgagebacked securities acquired in the years after the 2008 financial crisis.

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 per cent and 1.50 per cent by the end of 2017, or 0.25 percentage points above the current level.

US bond yields rose, pushing up the US dollar after the Fed’s decision, but US benchmark stock indexes were little changed.

US benchmark 10-year Treasury note yields rose as far as 2.29 per cent, the highest since August 8, a move which helped push bank stock prices higher also.

“The Fed took another step on its path of beautiful normalisation, announcing that the gradual balance sheet reduction will start next month and limiting revisions to both projections and policy guidance,” said Mohamed El-Erian, Chief Economic Adviser At Allianz, in California.

In its policy statement, the Fed cited low unemployment, growth in business investment, and an economic expansion that has been moderate but durable this year as justifying it’s decision. — Reuters