- The Federal Reserve holds short rates steady
- Unwinding of the Fed's balance sheet commences
- Impacts of Harvey & Irma to distort economic releases
- S&P 500 Q3 earnings expected to grow 4.5%
- Equity markets mixed on the week
As was widely anticipated the Federal Reserve Open Market Committee elected to keep short term rates steady in a range of 1% - 1.25%. The Fed will commence reducing the size of its balance sheet in October by not reinvesting proceeds from maturing securities. In theory, the “run off” of Treasuries and Mortgage Backed securities could push longer maturity yields higher over time. The last couple of weeks have seen longer term interest rates move higher in anticipation of the Fed’s actions. The Fed has emphasized it will implement its program slowly, and its intentions have been well telegraphed though are unprecedented. Rising rates implies principal loss for bondholders. We are currently conservatively postured in portfolios from an interest rate perspective. We don’t intend to make any major changes to our fixed income positioning and will monitor the impact of the Fed’s balance sheet reduction.