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The Fed’s Incredible Shrinking Balance Sheet
The Fed left its target interest-rate range unchanged at 1.00%-1.25% on Wednesday, as expected, but still plans a third rate hike this year. The 2017 economic growth forecast increased modestly to 2.4%, while estimates for inflation and unemployment fell slightly. In October, the Fed will begin reducing its balance sheet of Treasury and mortgage-backed securities in its efforts to gradually normalize rates. Shrinking the balance sheet should put only moderate upward pressure on long-term interest rates. We expect a Fed rate hike in December and two more increases in 2018.
Brian Nick, Chief Investment Strategist, TIAA Investments