The U.S. Federal Reserve is set to conduct its all-important meeting which would discuss trimming of the portfolio of assets acquired during the financial crisis. It will also dictate the legacy of Federal Reserve chair Janet Yellen.
Trimming the balance sheet
During the financial crisis in 2007, the Federal Reserve went on a shopping spree with Treasury bonds and mortgage securities. Now, the time has come to lessen the $4.5 trillion in bond holdings. This is where Janet Yellen’’s role is highlighted.
To reduce the excess bonds, the plan is to halt buying more bonds until it reached the $3 trillion mark in the next few years. Before the financial crisis happened, the Feds were operating with $900 billion before it went on acquiring more assets to revive the struggling economy.
The plan is to cut $10 billion per month, the cap will increase per quarter until it reaches $50 billion per month. Around $300 billion in bonds are expected to be trimmed in the first year of implementation while the numbers could reach $500 billion in its second year.
The future of Fed is still uncertain. Vice Chair Stan Fischer is leaving next month due to personal reasons while Janet Yellen’s first term ends in 2018. Both of them were appointed by former President Barack Obama. The decision of President Donald Trump, whether he will appoint someone new who is inclined to his deregulation views, is still up in the air. One of the possible choices for the position is his adviser Gary Cohn.
Yellen’s term has not faced a recession but it faced some challenges including the slow growth rate in China and the slumping oil price. If Trump decides to replace her, Yellen’s legacy will be her patience which created a lot of created jobs. There have been only four rate hikes under her watch and her policies helped revive the employment sector.
Meanwhile, economists expect that the interest rates are not going to be changed as far as the U.S. central bank is concerned since a 52% increase is expected to take place at the December meeting. As always, different nations will monitor the upcoming meeting and its possible effects on global economies.
The Asian markets have stabilized after the provocations from North Korea heightened the geopolitical tensions in the region. Oil stocks have also gained while there is a slight drop in major miners such Fortescue Metals and Rio Tinto following its announcement that chief financial officer Chris Lynch will retire next year. Crude oil futures remained unchanged amid the effects of the hurricanes and WTI crude was virtually the same at $49.89 on the New York Mercantile.
Economist Joel Naroff suggests that the aftermath of hurricanes will have any effects on the plan of the Feds to raise its rates. “The recovery efforts and reconstruction, including the replacement of vehicles, will accelerate growth in the next three quarters,” he added.
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