Wall Street loves the Fed and Janet Yellen

Fed to start to modestly reducing its bond holdings

Wall Street loves the Fed and Janet Yellen

Under the plan the Fed announced, it will start to allow a slight $10 billion in holdings to roll off the balance sheet each month - $6 billion in Treasurys and $4 billion in mortgage bonds.

An analyst noted that the prices are moving away because the market perceived the meeting's agenda and tone to be somewhat hawkish in terms of the forecasts and outlook for the interest hike.

The Federal Reserve also signaled an increase in the December rates as it starts on a never before unwinding of the purchases that it made during the crisis era.

The question of when and how the Fed will manipulate its main policy lever - its target for short-term rates - in coming months is less clear.

Looking to other central banks, Interactive Investor head of equity strategy Lee Wild says the ECB has been careful to keep at least one step behind USA policymakers for fear of over-inflating the euro.

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Despite almost seven years of uninterrupted job creation and a very low unemployment rate of 4.3 per cent, inflationary pressures and wage gains have been tepid at best, something that has baffled economists. For comparison, the economy grew at only a 1.2 percent rate in the first quarter of the year.

ALAN BLINDER: Ben Bernanke and company then were literally at a crossroads.

YDSTIE: The Fed chair and his colleagues didn't give up.

"Other countries went into quantitative easing and they are still stuck", Matus added.

"The risk for the FOMC (Federal Open Market Committee) in the balance sheet is in how it moves credit - particularly the Mortgage Backed Security market". The aim was to revive the housing sector.

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Yellen also shared that the Fed expects that the overall USA economy will continue to expand at a moderate pace over the next few years. Given this, a moderate reduction of the balance sheet will only have limited market impact. If they do, "it would require an adjustment of monetary policy", Yellen said.

JANET YELLEN: Stimulating a faster recovery than we otherwise would've had. Yellen said today the Fed's decision to wind down the program is a vote of confidence in the USA economy. In fact, 87.88 percent of Investing News Network readers who voted in a recent poll said the Fed would not increase rates this week.

Mould said: "If QE boosted asset valuations then it seems logical to assume its withdrawal may have the opposite effect - unless the USA economy and corporate earnings again take up the slack very quickly".

The reaction in the bond markets, however, was not uniform.

BLINDER: If you're buying a vehicle and you finance it with an auto loan, you'll pay a little more.

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YDSTIE: But Blinder said that will happen very gradually over the next several years.

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