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Money policy – Fed is expected to lead the end of the era of the big flood of money News

Saturday, September 16th, 2017 | Economy

"An era is coming to an end. At the interest rate meeting, the Fed is likely to announce the beginning of the stock reduction for early October," economist Christiane von Berg from BayernLB predicts.
The monetary guardians around Fed chief Janet Yellen have prepared the big step meticulously. All technical details have long been clarified as to how the portfolio of the banknote, swollen in the years after the financial crisis on the giant sum of 4.5 trillion dollars, is to be gradually evaporated. Now only the "start shot to dismantle the enormous balance" should fall, says Fed observer Bernd Weidensteiner of the Commerzbank. In addition, investors were eager to see whether a rate hike would be signaled in the current year.
The Fed had raised the key rate to provide the banks with money last June and hiked to the current range of 1.0 to 1.25 percent. On Wednesday evening, Yellen will have the opportunity to set the course ahead of the press. It is also likely to comment on the updated interest rate outlook for currency owners: The exciting question will be whether Fed executives will continue to signal a third step upwards this year. The bank, which, in addition to full employment, also aims at an inflation rate of two per cent, can hitherto only check the first part of its duties.
Low inflation causes headaches
Prices do not rise as fast as hoped. Recently, however, attractive gasoline prices had provided for some more price buoyancy. "However, the recent increase, which is also due to temporary effects, is unlikely to lead monetary policyholders to a faster monetary policy tightening," says Postbank's economist Lucas Kramer. He expects the Fed to raise its benchmark interest rate to 1.25 to 1.50 percent in December. Before this, however, the balance-sheet reduction had to be tackled.
Specifically, the central bank plans to gradually lower its portfolio of government bonds. Expiring papers should no longer be replaced in stages as before. This means that Washington's monetary policy makers are pushing ahead internationally and are on the brink of monetary policy: neither in Japan nor in the euro zone is such a maneuver foreseeable. The ECB is currently thinking about how it can reduce its bond purchases in the coming year. Even if the monthly purchase volume was to fall from January, the balance sheet total of the ECB would still be expanded. To say with Federal Reserve Commissioner Jens Weidmann: "We do not talk about monetary policy as a whole, but we do not always have to push the accelerator further."
The American central bank wants to trim monetary policy to a less loose line in the future, as the economic recovery in the US earlier than on this side of the Atlantic. The big money swings introduced as an anti-crisis measure no longer want to fit into the current economic situation: the US economy is running on high-ways. Between April and June, the gross domestic product (GDP) rose at an annual rate of 3.0 percent – the strongest gain in more than two years.
Lastly, Finance Minister Steve Mnuchin also confirmed the intention to launch a tax reform this year, which should give more impetus to the economy. However, the already foreseeable negative economic impact of hurricanes "Harvey" and "Irma" could interfere with the Fed's monetary policy plans. However, the view of previous catastrophic catastrophes shows that the Fed itself did not let itself be pulled off its course by strong storms.
(Reuters)

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