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The Slow and Steady Fed

The Slow and Steady Fed

Trump said last week that he likes and respects Yellen but hasn't made a decision yet about the next Fed chair. That term ends February 3, 2018.

"Let me say that I consider the behavior of Wells Fargo toward its customers to have been egregious and unacceptable", Yellen said during a press conference Wednesday. She met several months ago with President Donald Trump, who spoke favorably of her afterward.

"In my view, they need to normalize policy", he said. Yellen was nominated in October 2013 for the post, which requires Senate confirmation. The unemployment rate is just 4.4 percent, near a 16-year low.

Yellen likely has not forgotten the so-called taper tantrum of 2013. But its stimulus efforts that have kept rates near historic lows since 2008 have failed to boost inflation.

USA benchmarks were nervously to-ing and fro-ing ahead of the Fed's monetary policy update.

If we are using a 10-year horizon, the economy may have had one or two more recessions over that time if economic history were to repeat itself.

"Following some slightly disappointing recent data, particularly softer than expected inflation, there were concerns that the Fed would start to revert to a more cautious strategy".

Some companies with large dollar positions were liquidating their positions to reduce exchange losses in morning trade, while traders were taking profits on long dollar positions and heading to the sidelines ahead of the Fed announcement. But it also has predicted a "modest" rebound in inflation.

But it remains to be seen whether central bankers are more concerned about the temporary slowdown, or will brush it off. American Airlines Group rose $1.04, or 2.3 percent, to $45.42.

If interest rates returned to 5 percent, they would get $110 billion a year.

Any comments on inflation could provide a signal about the likelihood third increase in the Fed's benchmark interest rate this year.

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But when that official rate got to nearly zero, as it did in December 2008, the Fed's policy makers thought that it couldn't, or shouldn't go any lower. They now expect there will likely be two hikes, down from three.

Virtually all activity in the markets, including the precious metals, will be governed by one fact on Wednesday: it's Fed Day. And now, they are going to start letting $6 billion a month in Treasuries run off their balance sheet, and we've never seen that before. That neutral rate dropped to 2.9 percent in the new forecast, down from 3 percent in the Fed's June forecast.

The Fed stepped in to buy government bonds and mortgage-backed securities in 2008 when a crisis in the subprime mortgage market caused the bankruptcy of Lehman Brothers, forced the federal government to take over Fannie Mae and Freddie Mac and threatened a collapse of the global financial system.

Adobe fell 4 percent after the Photoshop maker's revenue forecast came in line with estimates. The caution in raising rates comes as inflation has consistently stayed below the Fed target of 2 percent.

Financial shares added to gains following the statement, with the S&P 500 bank index ending up 0.7 percent, while utilities declined 0.8 percent.

The Dow Jones industrial average rose 17 points, or 0.1 percent, to 22,388.

September's meeting is key because the Federal Reserve is expected to announce plans to unwind its massive $4 trillion balance sheet - a formal process for tightening monetary policy. The Fed policymakers' updated economic forecasts show an expectation for three more rate increases in 2018.

The Fed's next meeting is scheduled for October 31- November 1, but the Fed is unlikely to raise rates any sooner than its final meeting of the year, in mid-December.

In Europe, the CAC 40 index in Paris and the DAX 30 in Frankfurt were up 0.1% and down 0.1%, respectively, at midday.

The S&P 500 had a choppy session on Tuesday again but broke higher before it was all said and done. The dollar rose to 112.38 yen from 111.50 yen on Tuesday.

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