Published: Sat, September 23, 2017
Economy | By Melissa Porter

Yield on 10-Year Treasuries Reaches Three-Month High on Fed Announcement

Yield on 10-Year Treasuries Reaches Three-Month High on Fed Announcement

She declined to say if she wants to stay on after her term expires in February.

"I have said that I meant to serve out my term as chair and I'm really not going to comment ... beyond there", Yellen said during a Wednesday news conference.

The only other potential choice for Fed chair Trump has mentioned is Gary Cohn, a former Goldman Sachs executive who leads the president's National Economic Council.

The clock is ticking on Trump to pick a Fed chair and provide a continuity in leadership.

Ms Yellen said that, if they do, "it would require an adjustment of monetary policy".

The fed chair, who's term ends in February, said the bank believes that the persistently low inflation the United States the past four years is a temporary phenomena tied to the strength of the job market and a strong US dollar overseas, among other factors.

"It's premature to conclude that the underlying inflation trend is falling well short of 2%", Ms. Yellen told lawmakers. This includes a job market still healing from the Great Recession, lower energy prices and a strong dollar that reduced the costs of imports. Consumers continue to spend, and business investment is "picking up", the Fed said. The balance sheet expansion could be an option only if the interest rates hit the zero lower bound.

Yellen told reporters at a news conference that she would adjust Fed policy if she thought the causes of low inflation were permanent.

"Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year". It now projects even faster growth this year of 2.4 percent, an increase from it forecast of 2.1 percent earlier this year. The central bank raised interest rates twice this year, in March and June respectively. More recently, she has wondered whether something more widespread might be keeping inflation low.

Financial stocks have been on a tear in recent days as investors anticipated and then reacted to Fed commentary on rate hikes, which tend to help bank profits. They now expect there will likely be two hikes, down from three.

Meanwhile, the central bank offered more details about its plan to shrink its $4.5 trillion balance sheet. The Fed stopped buying new bonds in 2014 but kept its balance sheet high by reinvesting the proceeds of maturing bonds.

"The Fed took another step on its path of lovely normalization, 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. That figure would inch up by $10 billion each quarter until it reaches $50 billion in monthly reductions in October 2018.

The dollar index rose 0.75 percent, with the euro down 0.03 percent to $1.1888. It also lowered again its estimated long-term "neutral" interest rate from 3.0 percent to 2.75 percent, reflecting concerns about overall economic vitality.

Officials boosted their projection of gross domestic product for this year. In October, the Committee will initiate the balance sheet normalization program described in the June 2017 Addendum to the Committee's Policy Normalization Principles and Plans.

It will come as no surprise if the Federal Reserve has an announcement to make when its latest policy meeting ends Wednesday: That it's ready to begin paring its enormous $4.5 trillion portfolio containing Treasurys and mortgage bonds.

"In truth, however, the move has been so well telegraphed and, at just $US10 billion per month initially, the pace of run-down will be so gradual that it is unlikely to have a major impact on the economy or financial markets", he said.

Analysts expect further detail from the Fed on plans to reduce its $4.5-trillion balance sheet in the months ahead.

Asian stock indexes were little changed, with Japan's Nikkei up 0.1 percent, while in Europe Germany's Dax was 0.2 percent higher.

The dollar was also trading in narrow ranges, edging down to 111.50 yen from 111.58 yen the day before.

Like this: