Published: Fri, April 14, 2017
Money | By Oscar Reynolds

Fed official: Bond holdings would be reduced gradually

Fed official: Bond holdings would be reduced gradually

"A pause is pretty short already, and I think a little pause is even shorter than that", he said. Additionally, the members said they were keeping an eye on how expensive the stock market was getting and said it was monitoring soft vs. hard data.

Russ Mould, investment director at AJ Bell, said that any such move to reduce the size of the balance sheet and "sterilise" quantitative easing will be seen by some as the ultimate sign of the bond-buying scheme's success - namely that the U.S. economy is back on track a decade after the first signs of sub-prime mortgage distress became clear and is capable of functioning without emergency support. The U.S. job market continues to strengthen, and business and consumer confidence have spiked in recent months.

The Fed's lifted its benchmark interest rate in March to a target range of between 0.75 and 1 percent, its second hike in three months, and signaled it remained on track to lift rates twice more this year.

The Fed undertook its massive asset purchasing program during the global financial crisis as a means of holding down interest rates and spurring growth. Some observers argue that these holdings are weighing on long-term interest rates, and that the Fed should not intervene so heavily in the markets. Now the Fed is gradually reducing that support.

Capital Economics predicts December as the most likely meeting for the introduction of the new policy to occur, and that the federal funds rate will rest between 1.5% and 1.75% by that time.

ADP released its latest employment figures, with private sector payrolls rising by 263,000 last month.

Of the $4.5 trillion in total assets, some $2 trillion offset excess bank reserves.

"It has come as a minor shock" that the Fed wants to start the reduction in 2017, which appears to have been earlier than the market had been expecting, said Richard Perry, market analyst at Hantec Markets.

US total nonfarm payroll employment edged up by 98,000, well below market estimates of 180,000, and the unemployment rate declined to 4.5 percent in March. On the flip side, Taiyo Yuden is down more than 3 percent, Furukawa Co.is losing nearly 3 percent and Yaskawa Electric is declining more than 2 percent.

While Chicago Federal Reserve President Charles Evans is still on the positive side of supporting two more interest rate hikes for the year, St Louis Federal Reserve President James Bullard has reportedly made a decision to not support an additional rate hike.

Trump has promised to return the USA to sustained 4% annual GDP growth (which he recently downgraded to a 3% target), slash taxes significantly, invest $1 trillion in infrastructure, expand job opportunities, and more. But there was less agreement over the issues of inflation and Trump's economic plans. Yet the administration has confronted early hurdles pushing its tax and health-care plans through Congress, and ambitious promises from the campaign trail on trade and infrastructure have not yet been met.

"In view of the substantial uncertainty, about half of the participants did not incorporate explicit assumptions about fiscal policy in their projections".

"Several participants now anticipated that meaningful fiscal stimulus would likely not begin until 2018", the minutes said.

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