U.S. stock futures are pointing to a lower open on Thursday following decisions by the Bank of Japan and U.S. Federal Reserve on Wednesday to keep interest rates steady during their September policy meetings.
U.S. Federal Reserve Chair Janet Yellen said in opening remarks on Wednesday that economic growth will be held down in the 3rd quarter by the severe disruptions caused by Hurricanes Harvey, Irma, and Maria but as rebuilding gets underway, growth will likely bounce back.
Yellen confirmed that the Federal Reserve will begin to normalize its $ 4.5 trillion balance sheet in October by reducing security holdings at $ 6 billion per month for Treasuries and $ 4 billion per month for agency securities.
The caps will gradually increase throughout the year to maximums of $ 30 billion per month for Treasuries and $ 20 billion per month for agency securities.
Yellen explained that compared with the Fed’s earlier June economic projections, September GDP projections were slightly stronger while inflation, particularly core inflation, were slightly softer for 2017 and 2018.
Yellen said that the Fed’s preferred inflation gauge, PCE inflation, was lower noticeably from earlier in the year and was 1.4 percent in July, below the Fed’s 2 percent inflation target.
Core inflation, which excludes food and energy, has also moved lower; however, Yellen said that the Committee continues to expect inflation to move higher and stabilize near 2 percent during the next couple of years.
Updated economic projections during the Fed’s 2 day September policy meeting shows that median inflation projection is 1.6 percent in 2017, 1.9 percent in 2018, and 2 percent in 2019 and 2020.
Committee members have a median projection that U.S. GDP will reach 2.4 percent in 2017 and about 2 percent in 2018 and 2019.
By 2020 U.S. GDP is expected to lower slightly to 1.8 percent.
Concerning rate hikes with the federal funds, Committee members project 1 more rate hike in 2017 by .25 basis point to 1.4 percent by the end of 2017.
The federal funds rate is expected to climb to 2.1 percent by the end of 2018, 2.7 percent by the end of 2019, and 2.9 percent in 2020.
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