The US stock market was seen to come under slight pressure post the release of Federal Reserve’s latest minutes of meeting. This particularly entailed Fed’s intention to reduce its balance sheet ($US4.5 trillion) this year in case the economy remains on track. It has been specifically highlighted by the Fed that if the economy continued to perform about as expected, most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the committee’s reinvestment policy would likely be appropriate later this year. Some Fed members have also indicated that the equity prices have been “quite high” relative to standard valuation measures. With regards to reinvestments of the proceeds of maturing securities, some Fed officials suggested that reinvestments should be completely done away with in one go while some suggested for having a gradual phase-out for reinvestments to withstand market volatility.
The latest minutes have come as a warning that led to a sudden sell-off in the US stocks. Not much movement was seen for the bond markets as US 10-year yields moved slightly up while Aussie bonds witnessed a converse scenario with yield on the benchmark 10-year bond being lowered to 2.562 per cent.
It will be crucial to watch-out how Fed will try to balance out the interest rate hikes with the above move, if at all brought in action.
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