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23 September 2017, 01:19 | Maryann Sutton
The U.S. dollar shone while Asian shares slipped on Thursday after the U.S. Federal Reserve announced a plan to start shrinking its balance sheet and signalled one more rate hike later this year.
According to NY Times, the Fed still expects low unemployment and low inflation to sustain for a few more years.
USA government bond prices fell for an eighth consecutive session after the Federal Reserve indicated on Wednesday that it could raise rates again in 2017.
The 2-year Treasury note yield TMUBMUSD02Y, -0.55% the most sensitive to Fed policy shifts, was little changed at 1.443%, after hitting its highest level since November 3, 2008, according to WSJ Market Data Group.
"Right now, the market sees the Fed more hawkish than anticipated", said Tim Alt, director of currencies and rates at Aviva Investors.
USA economic data is likely to be affected in the coming weeks, however, by the impact of two hurricanes in the southern U.S. - most notably in the oil producing region of the Mexican Gulf and the state of Texas.
The Fed's interest rate policy can have an impact on mortgage rates and cap rates, and by extension property prices. They said they expect three more rate changes next year, two in 2019 and one in 2020.
Twelve out of the 16 members of the policy-setting Federal Open Market Committee indicated they expected to deliver a rate increase-the third of the year-by the end of 2017. Inflation in consumer items besides food and energy - whose prices are more volatile and move around in response to commodities prices - has been below the Fed's target level of 2% for nearly the entire post-recession period.
In November 2008, in the midst of the financial crisis, former Fed Vice Chair Alan Blinder says, the central bank had already exhausted its main tool to fight recessions.
After buying up United States treasuries and mortgage-backed securities as part of "quantitative easing", the United States central bank's balance sheet has swelled to $4.5 trillion, around four times its size before the financial crisis.
The plan starting next month will gradually reduce the size of the Fed's $4.5 trillion in investment holdings, which were built up during the financial crisis.
Yellen also said the bank still believes that persistently low inflation is temporary.
Some analysts thought the Fed might would raise interest rates today because of Chairman Yellen's press conference. If the Fed were to coalesce around that belief, doubts could arise about whether it should keep raising rates or delay further hikes.
In its other major decision, Fed policymakers left the benchmark rate unchanged in the range of 1 to 1.25 percent.
The bank did lower its projection for its so-called neutral rate.
YDSTIE: A Fed research paper found quantitative easing lowered long-term interest rates by a full percentage point.
"In the longer run, we may see government infrastructure spending in the areas most affected, a move that will provide some small fiscal stimulus".
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