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My colleagues and I on the Federal Open Market Committee decided to maintain the target range for the federal funds rate at one to one a quarter percent.
So the Fed decided to hold interest rates unchanged today as was widely expected. The big development, however, was the Fed has finally given a date on which it will start to unwind it's massive balance sheet, $4.5 trillion portfolio of assets that the Fed amassed during the financial crisis.
We also decided then in October we will begin the balance sheet normalisation programme that we outlined in June.
So next month. The reason, as Janet Yellen and the Fed chair said during a subsequent press conference, is that the Fed no longer feels that the stimulus that all those asset purchases provide is necessary, and it wants to just gradually very steadily reduce that stimulus or that element of its stimulus programme to the US economy.
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The Fed may have left interest rates unchanged, however, it made it clear via it's forecast that a further increase is coming and not too long from now. The median forecast for Fed policy makers in the projections that they put out with their statement today suggests that one more increase is likely to come in 2017 and then three more in 2018. Now, those forecasts aren't set in stone, but the likelihood is that the Fed will next move in December. That will be another quarter point increase in rates assuming that the economy progresses more or less along the lines that the Fed is expecting.
We anticipate that core and headline inflation will move up close to our 2% objective next year, namely that the shortfall this year is due to transitory factors that are likely to disappear over the course of the coming year.
A lot of the press conference that Janet Yellen held today focused on the very low inflation readings we've been getting in the United States. Inflation has been below target for about five years based on the Fed's preferred measure of inflation. But in particular this year, there have been a string of very, very poor readings, an interruption in August where readings jumped up, but the broad picture of very, very low inflation.
Now the broad message from Janet Yellen on the inflation picture is that it is a mystery. They are not entirely clear why inflation this year has been so poor, but the broad picture of the US economy is a strong one. They still believe that a lack of labour markets slack, a high resource utilisation should ultimately drive up prices and wages, and therefore they are going to continue with their strategy of gradually tightening monetary policy.
Of course, the big question really is what will that strategy look like next year if Janet Yellen isn't reappointed to a second term as Fed chair? That strategy really could change quite radically depending on who her successor is going to be. And right now we just don't know who Donald Trump is going to appoint.
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