Fed holds rates steady, but sees port­fo­lio cuts ‘soon’

The Star Early Edition - - BUSINESS REPORT - Ja­son Lange and Lind­say Dunsmuir

THE US FED­ERAL Re­serve kept in­ter­est rates un­changed yes­ter­day and said it ex­pected to start wind­ing down its mas­sive hold­ings of bonds “rel­a­tively soon” in a sign of con­fi­dence in the US econ­omy.

The US cen­tral bank kept its bench­mark lend­ing rate in a tar­get range of 1 per­cent to 1.25 per­cent and said it was con­tin­u­ing the slow path of mone­tary tight­en­ing that has lifted rates by a per­cent­age point since 2015.

In a state­ment fol­low­ing a two-day pol­icy meet­ing, the Fed’s rate-set­ting com­mit­tee in­di­cated the econ­omy was grow­ing mod­er­ately and job gains had been solid.

It also noted that both over­all in­fla­tion and a mea­sure of un­der­ly­ing price gains had de­clined – trends which have wor­ried some pol­i­cy­mak­ers – but that it ex­pected the econ­omy to con­tinue strength­en­ing.

“The com­mit­tee ex­pects to be­gin im­ple­ment­ing its bal­ance sheet nor­mal­i­sa­tion pro­gramme rel­a­tively soon,” the Fed said, ad­ding that it would fol­low a plan out­lined in June.

US stock prices rose fol­low­ing the de­ci­sion while yields on US gov­ern­ment debt fell. The dol­lar fell against a bas­ket of cur­ren­cies.

Af­ter push­ing rates nearly to zero to fight the 2007-2009 fi­nan­cial cri­sis and re­ces­sion, the Fed pumped more than $3 tril­lion (R39trln) into the econ­omy in a bond-buy­ing spree to fur­ther re­duce rates. Its bal­ance sheet has grown to $4.5trln. The state­ment ce­mented ex­pec­ta­tions the Fed would an­nounce at its next pol­icy meet­ing in Septem­ber the start of its bal­ance sheet re­duc­tion plan, mark­ing the end of a con­tro­ver­sial tool that drew crit­i­cism from Repub­li­can leg­is­la­tors in Congress.

“The Fed all but told the mar­ket the bal­ance sheet runoff will start in Septem­ber,” said Brian Ja­cob­sen, an in­vest­ment strate­gist at Wells Fargo Funds Man­age­ment in Menomonee Falls, Wis­con­sin.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.