US Fed's Yellen says has not met with Trump to discuss status

Janet Yellen speaks during a news conference after a two day Federal Open Market Committee meeting in Washington U.S

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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.

Currently, when assets mature the Fed is paid the principle from the maturing bond which it then uses to reinvest in new bonds, topping up its holdings, however, this is likely to be discontinued, so that the balance sheet can be reduced.

The economy expanded at a 2.1% annual rate in the first half, in line with the pace during this expansion, and USA government 10-year notes yield about 2.24%, down from 2.45% at the start of the year.

Shares of U.S. banks shot to a six-month high on Wednesday afternoon, lifted by a sharp rise in bond yields after the U.S. Federal Reserve signaled it was likely to raise interest rates again by the end of the year.

Fed fund rate futures FFF8 are pricing in about 65 percent chance of a rate hike by December, the highest level since March, and around 50 percent before the Fed meeting.

On Wednesday, the Fed left rates unchanged, hovering between 1% and 1.25%.

As per the Fed dot plot, median end-2017 projection is 1.375 percent implying one more rate hike of 25 bps expected by the end of current year. Raising rates too quickly could risk hobbling the recovery.

There's really not much action taking place in the markets today as investors eagerly wait to hear from the Federal Reserve, which is concluding its two-day FOMC meeting this afternoon.

Ms Yellen said the hardship caused Hurricanes Harvey, Irma and Maria may hurt growth in coming months but she does not expect it to "materially alter the course of the national economy in the medium term".

"When the storm effects fade the economy will be as strong as before they hit, and that requires the gradual normalization of policy to continue", Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in an emailed note. Mr. Trump has said he is considering renominating Ms. Yellen, but that he is considering others for the post as well.

The reaction in the Treasury market "suggests a lot of people maybe weren't anticipating the Fed would stick with the third rate hike expectation this year".

But inflation is still running below that target, even though the job market has picked up and other explanations have fallen away. The real step change may come next year, when changes in committee composition and the potential replacement of Janet Yellen as chair could mean that more hawks are in a position to impose their views.

But Central bankers have a hard juggling act to maintain against inflatioin and economic growth.

A sequence of unexpected natural disasters, inconsequential inflation and deep-rooted personnel changes at the Fed itself are the main factors favouring a more cautious assessment.

Still, questions remain, both about how markets react and where the Fed will decide where to stop.

Others, however, believe the Fed will stick by its clearly laid out plans, and move forward with the rate increase this year, followed by three more in 2018.