Markets at new record highs ahead of US Federal Reserve decision


US Treasury yields and the dollar gained on Wednesday after the Federal Reserve signaled it expects one more US interest rate hike by the end of the year.

The fed chair, who's term ends in February, said the bank believes that the persistently low inflation the United States the past four years is a temporary phenomena tied to the strength of the job market and a strong USA dollar overseas, among other factors.

"Relative to the June forecasts there may be more participants anticipating no more hikes this year, but we don't think so many will switch to this view as to bring down the median", said Michael Feroli, chief USA economist at JP Morgan. This year has been different thanks to a synchronized upturn in global growth and easing financial conditions that have sent stocks to new records while bond yields, which ran up sharply after President Donald Trump's election last year, have drifted back down.

In other precious metals, silver was down 0.5 percent at $17.04 an ounce, after falling to its lowest since August 25 in the previous session.

Market odds for at least one rate increase by December were approaching 60 percent by Tuesday afternoon.

The Fed's plan to tighten policy comes despite subdued inflation that has been running below the central bank's annual 2% target.

As expected, the USA central bank said it would begin limiting the reinvestment of principal payments on its holdings of government and agency debt by $10bn, starting in October, while the target range for the Fed funds rate was kept at between 1.0% and 1.25%. Economists have pointed to December as the likely time for the next rate hike, and new projections from Fed policymakers indicate another rate hike remains likely before the end of the year.

"Our balance sheet will decline gradually and predictably", Federal Reserve Board Chair Janet Yellen said, at a news conference following the meeting.

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Despite Yellen's assurances, experts say the road ahead could be bumpy. This includes a job market still healing from the Great Recession, lower energy prices and a strong dollar that reduced the costs of imports.

Still, the Fed said in a statement that prices for gasoline and other items might temporarily spike because of the damage caused by Hurricanes Harvey, Irma and Maria.

"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".

Despite many encouraging signs in the economy, Yellen is opting to go slowly to reduce the central bank's $4.5 trillion holdings.

The current plan of shrinking the Fed's massive balance sheet is probably far from being a one-way ticket.

The pan-European FTSEurofirst 300 index lost 0.09 percent.

However, 12-month inflation is still expected to remain below the Fed's two percent goal in the near term, stabilizing at the target rate only in the medium term. The unemployment rate is just 4.4 percent, near a 16-year low.

Some analysts say they think Trump may opt to retain Yellen, in part to allay concern in the financial markets about too much upheaval at the Fed.