Fed raises rates, unveils cuts to bond holdings in sign of confidence

Federal Reserve Chair Janet Yellen steps offstage after speaking at the Federal Reserve System Community Development Research Conference in Washington. There isn’t much suspense about what the Fed wil

The announcement that the Fed plans to begin paring its balance sheet later this year - "provided that the economy evolves broadly as anticipated" - involves its enormous portfolio of Treasury and mortgage bonds.

Federal Reserve policymakers have raised their target for the benchmark federal funds interest rate by a quarter-point, to a range of 1 percent to 1.25 percent.

While job gains have moderated, they are still solid on average, and the unemployment rate has declined, the nations banker notes. "Near term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely".

The Committee directs the Desk to continue rolling over maturing Treasury securities at auction and to continue reinvesting principal payments on all agency debt and agency mortgage-backed securities in agency mortgage-backed securities. Those figures would rise in increments over a year until they reached $30 billion a month in Treasurys and $20 billion in mortgage bonds. This process could put upward pressure on long-term borrowing rates.

In a separate statement on Wednesday, the Fed spelled out the details of its plan to allow the balance sheet to shrink by gradually rolling off a fixed amount of assets on a monthly basis.

"The Fed announcing an update to their reinvestment principles leaves September open".

Stocks rose on Wednesday, but worries about stretched valuations and caution before a near-certain rate hike by the U.S. Federal Reserve kept their gains in check, while the dollar steadied against a basket of major currencies.

This has raised questions about the bank's future course. While unemployment has trended lower in the previous year, sinking from 4.7% to 4.3%, inflation, the change in consumer prices over time, has been remained below its 2% target, which suggests that the economy is not in danger of imminently overheating. They now expect prices excluding food and energy to rise 1.7% this year, from a projection of 1.9% in March. Officials see the unemployment rate over the long run rising to 4.6%, down from 4.7% in the March projection.

"I think that is a way of saying that the fiscal stimulus that had been expected several months ago has been very slow to develop and that forecasters within the Fed and the governors and presidents who contribute to the SEP [Summary of Economic Projections], the economic projections are simply not making an assumption on fiscal stimulus". In March, the median estimate of Fed officials projected four rate increases over that period. The Fed usually tries to aim for 2% core inflation or less.

Probable decision of the US Federal Reserve System (Fed) to raise the key rate won't have a big effect on the Azerbaijani manat's rate, John Hardy, Saxo Bank's head of foreign exchange strategy, told Trend June 13.

By 0743 GMT in London, the Canadian, New Zealand and Aussie dollars were between 0.2 and 0.6 percent higher on the day against their US counterpart at respectively C$1.3218, $0.7248 and $0.7581.

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