Uncertainty ahead of US Fed meeting announcement

Bonds weaker as market eyes consumer inflation data and rate decision

Under the plan the Fed announced in June, it will start to allow a slight $10 billion in holdings to roll off the balance sheet each month - $6 billion in Treasurys and $4 billion in mortgage bonds.

Fed fund rate futures are pricing in about 65 per cent chance of a rate hike by December, the highest level since March, and around 50 per cent before the Fed meeting.

The Fed left rates unchanged for now, as was widely anticipated, but investors' expectations changed for December after the U.S. central bank signalled one more rate hike by year-end despite recent weak inflation readings. A critical question is whether the Fed has grown troubled or confused about chronically low inflation.

The central bank also confirmed that it will end an unprecedented stimulus program launched at the height of the financial crisis, when the Fed had cut rates to zero and had no ammunition left to help support the economy.

It maintained its guidance that one further interest rate hike was likely this year despite inflation coming in weaker than expected - adding timid price growth was being "closely" watched.

"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", said the Fed in a statement after concluding its two-day monetary policy on Wednesday, Xinhua news agency reported. After leaving its benchmark rate at a record low for seven years after the 2008 crisis, the Fed has modestly raised the rate four times since December 2015 to a still-low range of 1 percent to 1.25 percent. Clues to the answer might come in the policy statement the Fed will issue, in its updated economic forecasts or in the news conference Chair Janet Yellen will hold. "The U.S.is the first to get out".

USA benchmark 10-year Treasury note yields rose as much as 2.29 percent, the highest since August 8., while two-year yields rose to the highest since November 2008. "Maybe the reality is starting to sink in for the market that they really do want to go in December", said Tom Porcelli, chief USA economist, RBC Capital Markets, New York. More recently, she has wondered whether something more widespread might be keeping inflation low. As a result, financial markets have seemed unsure about whether the Fed would raise rates again before year's end.

The central bank did, however, offer a rosier picture of the overall economy, upping its economic growth forecast to 2.4% from 2.2%.

Right now, the markets and economists are certain Yellen's post Fed-meeting announcement will include details on the beginning of what it calls "policy normalisation".

Yellen said the recent data breach points to the importance for strong cybersecurity controls - and that the Fed and other regulators are focused on ensuring banks have them in place, she noted.



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