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The fed funds target range was maintained at 0%-0.25%. The FOMC announced a $10 billion reduction in the pace of the Fed's asset purchases to $15 billion. Beginning next month, the Fed will buy $10 billion of longer-dated Treasuries and $5 billion of MBS. Asset purchases are expected to end next month. The economic assessment noted economic activity expanding at a moderate pace but significant underutilization of labor resources remains. Inflation expectations are stable but inflation is running below the Fed's longer-run objective.
We look for no change in the fed funds target. Another $10 billion reduction in QE3 asset purchases is expected, split equally between Treasuries and MBS. QE3 purchases are still expected to end in October. The current reinvestment policy is likely to be maintained until after the rate lift-off next year.
The ECB unexpectedly cut all policy rates today, bringing the Refi rate down to 0.05% and the deposit rate to -0.20%. The TLTROs will therefore be conducted at 0.15%. This time the ECB has reached the lower bound as Draghi promised there would be no more rate cuts. The other announcements (an ABS and covered bond purchase programme, with operational details coming in October) and changes to the official statement and staff forecasts were broadly in line with our expectations.
In this Focus, we look at the degree to which prices are overvalued in the UK real estate market in light of standard household solvency indicators. A significant geographical disparity in trends in these indicators suggests that the existence of a housing bubble is limited to London and the south of the country.
ECO Focus - Edition 1st September 2014
UK: Ratio of real estate prices to household incomes
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