The Federal Reserve decision to start to shrink its balance sheet is expected to have a material influence on asset markets over time. In late July, the Fed warned the market that the balance sheet deduction would begin “relatively soon,” which was quickly translated into the next meeting, the two-day meeting ending Sept. 20. Economists caution against jumping to the conclusion that the response so far in the markets proves the balance sheet unwind effect is a non-issue, seeing several offsetting developments at work.
"I think the Fed has done a really good job in the past months of letting people know what they're going to do," said Bruce Bittles, chief investment strategist at Baird. "The question mark is in whether there will be any hints about the federal funds rate." Bittles noted that the stock market could react poorly if the central bank announced both a balance sheet rollback and suggest a rate hike in the near future. "The markets would not that," he continued, adding the the recent hurricanes make it difficult for investors and bankers to judge the strength of the economy and inflation. The Labor Department reported that consumer prices rose 0.4 percent last month, making August's gain the largest in seven months and lifting the year-over-year increase in the CPI to 1.9 percent.
Germany's Thyssenkrupp and Tata Steel of India signed a preliminary deal on Wednesday to merge their European steel operations, a combination that could lead to up to 4,000 job cuts. The move to create Europe's second-largest steel company is an effort to consolidate the industry, which has long struggled with excess capacity and competition, particularly from China. Negotiations about details are to be concluded in time for a formal signing of the transaction at the beginning of 2018, and the merger of the second- and third-biggest players in Europe will require approval from the companies' boards and from antitrust authorities.