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25 May 2017, 02:01 | Ruby West
U.S. Treasury yields fell to session lows on Wednesday after the Federal Reserve's minutes on its May 2-3 meeting signaled that the central bank remains on a gradual approach to raise interest rates and reduce its bond reinvestment.
While the yield curve flattened, the S&P 500 closed at a record high after minutes from the USA central bank's May 2-3 policy meeting indicated the Fed would gradually raise rates and wind down its $4.5 trillion of bond holdings.
Investors are also awaiting more details regarding the Fed trimming its $4.5 trillion balance sheet.
The Fed had forecast raising interest rates three times this year if the economy remained steady.
"Most participants judged.it would soon be appropriate", to raise rates if the economy stays on track, according to the minutes.
The central bank raised rates in March and December, amid a wave of optimism in the early days of Trump's term, with his promises of tax cuts, deregulation and big infrastructure spending.
Policy makers agreed that they should provide additional details of the plan "soon" and almost all said it would be appropriate to start the process this year, provided their expected path for rate hikes stays on track. Higher rates mean that America has to pay more to borrow, and the combination of more elevated rates and a smaller balance sheet will leave the Fed with lower excess earnings, which it pays back to the Treasury. Nothing in the material the Fed released Wednesday suggested otherwise. The number of properties listed for sale has plunged 9 percent over the past 12 months to 1.93 million.
Fed officials, however, made clear their baseline expectation was for a return to stronger economic growth. A tightening labor market and historically low mortgage rates have helped the housing market recovery. And it shows just how much policy makers would prefer to influence markets through short-term rates than by adjusting their overall debt holdings, which were built up over years of quantitative easing.
"The minutes show that the Fed is going to be cautious and is in no rush to adopt a hawkish tone with respect to their balance sheet", said Naeem Aslam, chief market analyst for Think Markets.
The US central bank now holds around $4.5 trillion in securities, mostly in US Treasury bonds and mortgage-backed securities.
Canada's dollar strengthened to a one-month high against its US counterpart after the Bank of Canada was more upbeat about the economy than some investors expected and as major oil producers looked set to possibly extend production cuts.
U.S. Federal Reserve members appear to be on the same page on to unravel the mammoth stimulus implemented during the 2008-09 financial crisis. Currently, all maturing securities are reinvested by the Fed.
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