Treasury Yields, Dollar Surge as Fed Raises Odds of December Rate Hike

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The Federal Reserve has said that it will start to run down some of the investments it made to boost the USA economy after the financial crisis.

Gold had been creeping higher in the minutes before the Fed released a statement about its latest two-day policy meeting, then reversed course and fell.

This is 0.8 per cent below the revised July estimate of 1,190,000, but is 1.4 per cent above the August 2016 rate of 1,164,000.

Looking ahead the AUD USD exchange rate may advance on Tuesday as the Reserve Bank of Australia (RBA) publishes the minutes from its September policy meeting. While the Fed is expected to take another step toward policy normalization and announce plans to begin unwinding its US$4.5 trillion balance sheet, investors remain cautious, which is capping the United States dollar.

The reaction in the Treasury markets was volatile as expected.

The Fed announced Wednesday it would begin to roll off its $4.5 trillion balance sheet in October and indicated one more rate hike is likely this year. Mitsubishi Electric is adding more than 1 percent and Panasonic is advancing almost 1 percent, while Sony is losing almost 2 percent and Canon is down almost 1 percent.

The Federal Reserve on Wednesday maintained its benchmark interest rate at a range of 1% to 1.25%.

The Fed also forecast three rate increases in 2018 and two in 2019 and provided a timetable for how the balance-sheet reduction would occur. Even though the Fed's about to reduce their balance sheet, you continue to have incredibly aggressive monetary policy.

Its announcement signalled that it would not yet sell bonds - risking a flood in the market - but scale down the reinvestment slowly by initially cutting up to $10bn each month. "So there's a little adjustment going on there", said David Joy, chief market strategist at Ameriprise Financial in Boston.

"Other countries went into quantitative easing and they are still stuck", Matus added.

About 5.97 billion shares changed hands on US exchanges on Monday, compared with the 5.91 billion average for the last 20 sessions.

Starting in October, the Fed will begin unloading $10 billion of debt from its so-called balance sheet, including $6 billion in Treasury securities and $4 billion in agency debt.

The Fed anticipates ending the runoff at some point, though it doesn't yet have a specific date.

"I think that they will still on average lean toward hiking in December", he told AFP, noting there are a "sufficient number" of officials who believe low inflation is due to temporary factors.

Their projections remained the same as in June for the unemployment rate, which is forecast to be at 4.3 percent by the end of the year, and inflation, which is expected to be at an annual 1.6 percent rate by the end of 2017.

THE FED: The consensus in markets is that the Fed will hold off from raising interest rates again but indicate that another increase could come in December.