US Fed announces plan of $4.5 trillion balance sheet reduction

"By limiting the volume of securities that private investors will have to absorb as we reduce our holdings, the caps should guard against outsized moves in interest rates and other potential market strains", Yellen said during the news conference on Wednesday following the FOMC meeting.

In Australia, central bank governor Philip Lowe said interest rates were more likely to go up than down but would stay at record lows for some time as inflation remained weak.

Despite cutting its inflation forecasts for the next two years to well below its 2% target, the US Federal Reserve has lined up four more rate rises between now and the end of 2018, as well as kicking off the winding back of its huge $US4.5 billion balance sheet.

The Consumer Price Index, a major measure of consumer inflation in the USA economy, rose 0.4 percent in August, or 1.9 percent year-on-year, according to the Labor Department.

Policymakers will also indicate whether they expect borrowing costs to rise this year, and where they expect rates to peak in a few years, by using the Fed's famous Dot Plot.

USA economic data is likely to be affected in the coming weeks, however, by the impact of two hurricanes in the southern U.S. - most notably in the oil producing region of the Mexican Gulf and the state of Texas. But it said history suggests that the storms were unlikely to affect the national economy over the long run.

The U.S. dollar notched solid overnight gains against both the pound and the euro as traders priced in faster-than-expected increases in the Fed Funds rate, which now sits in the range of 1% to 1.25%.

India bound by law not to deport Rohingyas
The Union Minister further said that the Centre will take a decision, which will in the nation's interest, on the Rohingya matter. Without legal rights, he says, the Rohingya struggle to find employment and are vulnerable to abuse by criminal gangs.

According to the CME Group's FedWatch tool, investors now see a 56 percent chance of a rate increase by the end of December, CNBC reported.

Fed officials continue to expect the U.S. economy to expand at a moderate pace in the future. Wednesday's move to unwind its massive bond holdings is yet another sign of the Fed's confidence in the economy.

The Fed announced Wednesday that it will let a small portion of its $4.5 trillion balance sheet mature without being replaced, starting in October with reductions of $10 billion a month and gradually rising over the next year to $50 billion a month.

Central bankers have been in a bind over when to lift rates again. After its first rate increase in 2015, however, the central bank didn't again hike its short term rate for a year, thanks to economic weakness in the United States and unstable global markets.

Still, officials seem to be prepping markets for the possibility of a rate increase. That has now changed and when the programme gets up to speed the Fed will be reducing its balance sheet by $600bn a year.

The other policy decision on Yellen's agenda involves the Fed's so-called balance sheet. "Despite the Fed lowering its short-term "core" inflation outlook it still indicates a majority of members expecting a December FFR hike". That inflation could also damage the economy.

By contrast, the prospects for U.S. interest rates are far more unclear.

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