Full coverage: Fed to unwind bloated balance sheet, signals Dec rate hike

The US Federal Reserve has kept its interest rate unchanged on Wednesday but announced that it would start unwinding its $4.5-trillion balance sheet from October, a further step to end the loose monetary policy.

The central bank expected the Hurricanes Harvey, Irma and Maris to affect US economy in the near term, but would not alter the course of the economy in the medium term.

According to the Fed's economic projections, Fed officials expected the US economy to grow 2.4 per cent this year, higher than their forecast of 2.2 per cent in June. 

The projections showed that Fed officials continued to expect one more rate hike this year. The central bank raised interest rates twice this year, in March and June respectively. 

Business Standard brings you the full coverage of the Federal Open Market Committee’s rate-cut meeting:

Interest rates unchanged, balance sheet to fall 

The interest rate outlook for next year remained largely unchanged, with three hikes envisioned. It forecasts only two increases in 2019 and one in 2020. It also lowered again its estimated long-term "neutral" interest rate from three per cent to 2.75 per cent, reflecting concerns about overall economic vitality.

In October, Fed would begin to reduce its approximately $4.2 trillion in holdings of US.

The limit on reinvestment is scheduled to increase by $10 billion every three months to a maximum of $50 billion per month until the central bank's overall balance sheet falls by perhaps $1 trillion or more in the coming years. (Read more)

December rate hike possible and other key takeaways

New economic projections released after the Fed’s two-day policy meeting showed 11 of 16 officials seeing the appropriate level for the federal funds rate, the central bank’s benchmark interest rate, to be in a range between 1.25 per cent and 1.50 per cent by the end of 2017, or 0.25 percentage points above the current level.

Balancing act: The policy statement showed the Fed in a balancing act between low US unemployment low and a recent drop in US inflation. It decided to maintain the target range for the federal fund's rate at 1 to 1-1.4 per cent, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 per cent inflation. (Key takeaways)

‘Fed winding down balance sheet won't dent sentiment’

US-based Robert F Baur, chief global economist, Principal Global Investors, says that global equity markets can continue to move up as long as the profit growth is strong, economic growth is robust and interest rates don't mount too high.

Growth in India: Baur said that with there has been confusion over Narendra Modi’s demonetisation drive and implementation of goods and services tax (GST). However, he added, with commodity prices above the lows of 2016, emerging markets as a whole should do well going ahead. (Read full interview here)

How Indian markets reacted

The Sensex of the BSE, which had closed at 32,400.51 points on Wednesday, opened higher at 32,406.42 points.

Minutes into trading, it was quoting at 32,429.72 points, up by 29.21 points, or 0.09 per cent.

At the National Stock Exchange (NSE), the broader 51-scrip Nifty, which had closed at 10,141.15 points, was quoting at 10,146.55 points, up by 5.40 points or 0.05 per cent. 
 

Heavy selling pressure was witnessed in automobile, consumer durables and banking stocks. (Get live updates here)

Wall Street closes higher 

The S&P 500 and the Dow ended slightly higher on Wednesday, adding to their string of closing records. The Dow Jones Industrial Average rose 41.79 points, or 0.19 per cent to end at 22,412.59, its seventh straight record close.

The S&P 500 gained 1.59 points, or 0.06 per cent, to 2,508.24, clocking its sixth record closing high in the last seven sessions. The Nasdaq Composite dropped 5.28 points, or 0.08 per cent, to 6,456.04, with Apple Inc as its biggest drag. (Read more)