Fed to Shrink Assets Next Month, Boost Rates by Year-End

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But the Fed has said that the amount of reserves held by the banks when this process is complete is likely to be higher than before the crisis.

John Silvia, chief economist at Wells Fargo, said some investors appeared surprised that the Fed still expects to raise rates by December. The People's Bank of China (PBOC) allows the exchange rate to rise or fall 2 percent from official midpoint rate it sets each morning.

Bed Bath & Beyond sank 17 percent to its lowest since 2009 after the home furnishing retailer reported earnings and sales below estimates, prompting a slew of price target cuts.

EUR/USD fell to a fresh low for the day at 1.1862 as the Yellen press conference moved along. The Russell 2000 index of smaller-company stocks was up 5 points, or 0.4 per cent, to 1,446.

The Russell 2000 is up 88.29 points, or 6.5 percent.

But he warned that her belief that the U.S. economy was bouncing back from a slowdown in the first quarter may be too optimistic and that the reduction in the balance sheet, combined with rising interest rates, "will very likely push long-term interest rates higher over the next few years".

Investors also weighed new data on the USA housing market that showed sales of previously occupied homes fell 1.7 percent in August.

Banks rose. Rising bond yields mean banks can charge higher interest rates on loans. The issues led to $190 million in fines and restitution by federal regulators a year ago and a public relations headache for the bank, causing the ouster of its CEO and a more recent shakeup of its board of directors.

In the bond market, treasuries have pulled back near the unchanged line after moving slightly higher earlier in the session.

The Standard & Poor's 500 index edged up 1.59 points, or 0.1 percent, to 2,508.24.

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Considerable strength is also visible among transportation stocks, resulting in a 1.4% advance by the Dow Jones Transportation Average.

While the start of the process to shrink the Fed's balance sheet is an important step in the normalization of post-crisis monetary policy, the details of when it will get under way will probably be a non-event for financial markets, said Gennadiy Goldberg, interest-rate strategist at TD Securities in NY.

But the central bank did take historic action on Wednesday: It will begin undoing the extraordinary steps it took to prop up the economy for nearly a decade after the financial crisis. American Airlines Group Inc (NASDAQ:AAL) gained 2.3% thanks to an upgrade by Raymond James analysts noting initiatives aimed at corporate and premium consumers is getting traction. Energy stocks received a boost from an overnight surge in crude prices (+2 per cent).

Technology stocks were down the most.

The Committee also anticipates that the caps will remain in place once they reach their respective maximums so that the Federal Reserve's securities holdings will continue to decline in a gradual and predictable manner until the Committee judges that the Federal Reserve is holding no more securities than necessary to implement monetary policy efficiently and effectively.

Brewer and distiller Diageo was at the other end of the blue-chip index, down 2.2%. The Nasdaq composite fell 19 points, or 0.3 percent, to 6,442. It has helped boost the political fortunes of President Donald Trump, who touted the USA stock market Tuesday in a speech before the United Nations, saying "the stock market is at an all-time high, a record".

Federal Reserve Chair Janet Yellen is staying mum about whether she wants a second term as the head of the US central bank.

In oil, the USA crude price (West Texas Intermediate) is up over 1.1% to US$50.04 a barrel.

Gold, which tends to move inversely to yields and the dollar, took it on the chin in electronic trade but is holding above the psychologically important $1,300-an-ounce level. The cereal maker slid $3.21, or 5.8 percent, to $52.17.



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