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US Federal Reserve to start unwinding $4.2tn stimulus from October

US Federal Reserve to start unwinding $4.2tn stimulus from October

"The quiet nature of (the market) is in anticipation of the Fed meeting".

What did the Fed say?

The dollar fell 0.3 percent against the euro ahead of the two-day talks, with markets awaiting guidance on whether the Fed will signal a further hike in interest rates at its December meeting. Interest rates will be the active policy tool moving forward, and it will take another economic tsunami for the Fed to halt or reverse the policy, Yellen indicated during her press conference following the announcement.

INVESTOR INSIGHT: "The Fed's seemingly hawkish views on sustained lift-off in USA interest rates may be seen as a form of pressure for regional equities and could dampen prices today", said Jingyi Pan, market strategist at IG in Singapore. Australia's S&P/ASX 200 edged up almost 0.1 percent to 5,724.70.

Even if there is a modest pullback in stocks when the Federal Reserve starts to unwind its balance sheet, the central bank will still raise interest rates in December, closely followed analyst Peter Boockvar told CNBC on Wednesday.

As expected, the Fed also said it will gradually begin reversing its bond buying (or quantitative easing) from October.

The US central bank, as anticipated, also said it would begin in October to reduce its holdings of around $4.2 trillion in US Treasury bonds and mortgage-backed securities it acquired after the 2008 financial crisis. Inflation has been stubbornly low for years, suggesting the Fed should hold off.

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But the predictions may be less useful now, because of the high number of vacancies in key Fed positions, said Mekael Teshome, an economist for Pittsburgh-based PNC Financial Services Group.

"Higher prices for gasoline and some other items in the aftermath of the hurricanes will likely boost inflation temporarily", the Fed warned in its statement.

The Dow rose 39.45 points or 0.2 percent to 22,370.80, the Nasdaq edged up 6.68 points or 0.1 percent to 6,461.32 and the S&P 500 inched up 2.78 points or 0.1 percent to 2,506.65. China's Shanghai Composite Index gained 0.3 percent to 3,366.00.

"We look for the market to stabilise between here and (its) recent low at US$1,275.69", Commerzbank said in a weekly note. "The U.S.is the first to get out". Yesterday's 1News Colmar Brunton poll yesterday showed the National Party rose six points to 46 percent compared to last week's poll while Labour fell seven points to 37 percent.

The Australian dollar surged to 80.87c overnight, but that was short-lived.

The kiwi traded at 73.21 United States cents as at 5pm versus 73.50 USA cents as at 8am and from 73.12 cents before yesterday's poll showing the incumbent National Party in the lead.

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