US Fed announces plan of $4.5 trillion balance sheet reduction

The US Federal Reserve has kept its interest rate unchanged but announced that it would start unwinding its $4.5 trillion balance sheet from October, a further step to end the loose monetary policy.

"Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year," said the Fed in a statement after concluding its two-day monetary policy on Wednesday, Xinhua news agency reported.

The central bank expected the Hurricanes Harvey, Irma and Maris to affect US economy in the near term, but would not alter the course of the economy in the medium term.

Fed officials continue to expect the US economy to expand at a moderate pace in the future.

According to the Fed's economic projections which were released on Wednesday, Fed officials expected the US economy to grow 2.4 per cent this year, higher than their forecast of 2.2 per cent in June.

The projections showed that Fed officials continued to expect one more rate hike this year. The central bank raised interest rates twice this year, in March and June respectively. Previously, market expects the Fed might raise interest rate again in December.

Analysts widely believed that inflation developments will determine the timing of next rate hike.

"This year, the short fall of inflation from two per cent... is more of a mystery," said Fed chairwoman Janet Yellen at press conference on Wednesday.

In July, the core personal consumption expenditure (PCE) index, Fed's favor inflation indicator, rose only 1.4 per cent year on year, below Fed's two percent target and also lower than the 1.9 per cent in January.

According to Fed officials' projections, the core PCE index is expected to rise 1.5 per cent this year and 1.9 per cent next year, lower than the 1.7 per cent and 2 per cent forecasts in June.

--IANS

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