Fed gives clue on timing of balance sheet reduction

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Fed gives clue on timing of balance sheet reduction

Mobile carrier NTT Docomo lost 1.5 percent after the Nikkei business daily reported that its April-June group operating profit likely sank almost 10 percent on year because of competition from budget carriers. But tweaks in the Fed's statement indicated that policy makers have grown more concerned about a recent slowdown in inflation.

The chief economist of Stifel Fixed Income, Lindsey Piegza, said the Fed appeared eager to raise interest rates back to a more "normal" level and might well approve an increase at its next meeting in September.

After pushing rates almost to zero to fight the 2007-2009 financial crisis and recession, the Fed pumped over $3 trillion into the economy in a bond-buying spree to further reduce rates.

Carsten Menke, commodities research analyst at Julius Baer, said support for precious metals from a weak United States dollar is expected to run out of steam.

Market participants largely expect the Fed to keep rates unchanged. However, the FOMC also plans to shrink its balance sheet. The addition of the language "relatively soon" potentially signals officials' inclinations to alter balance sheet policy at the upcoming September meeting.

The Canadian dollar has soared 10 percent since early May on the back of a weaker US dollar and robust economic data that spurred the Bank of Canada to raise interest rates, while higher oil prices also supported.

Fed gives clue on timing of balance sheet reduction
Fed gives clue on timing of balance sheet reduction

The Federal Reserve statement also noted that interest rates are likely to remain low for "some time", highlighting that increases in its benchmark rate will depend on incoming economic data.

"The probability of a December rate hike, according to Bloomberg's interest rate forecast, has dropped to around 40 per cent, from 50 per cent only three weeks ago", said CMC market analyst Margaret Yang.

"Job gains have been solid, on average, since the beginning of the year, and the unemployment rate has declined", the central bank wrote in its statement.

MSCI's broadest index of shares outside Japan rose 0.5 percent in early trade to levels not reached since January 2008.

Investing.com offers an extensive set of professional tools for the financial markets. During the January-March quarter this year, the gross domestic product, the broadest gauge of economic health, grew at an anemic 1.4 percent annual rate - well below a healthy pace and far below the consistent 3 percent or more annual growth that President Donald Trump's administration has said it can achieve.

Investors will now be looking to Friday's preliminary second quarter growth estimates and next week's July non-farm payrolls report for more clues on the USA economy.

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