U.S. equity markets were little changed during a week that saw President Trump and North Korean leader Kim Jong-Un continue to trade barbs. 

In a widely expected move, the Federal Reserve voted to hold rates pat, and to begin reducing its balance sheet in October. The plan, which the Fed first disclosed at its June meeting, does not actually involve the sale of securities.  Instead, it calls for reducing the reinvestment of principal payments received from securities currently held on their balance sheet. Initially, the Fed will curtail its purchases of Treasury and Agency securities by $10B/month. That amount will increase quarterly until it reaches $50B/month in October 2018.  Thereafter, the $50B/month run rate will be maintained until such time that the Fed believes it has reduced its balance sheet to an appropriate size. As one economist recently described it, the Fed’s plan is akin to someone announcing that they plan to lose weight by simply eating two desserts as opposed to three.

Over the weekend, Angela Merkel won a fourth term as German Chancellor.  However,  her party captured just 1/3 of the vote, down from over 41% four years ago. At the same time, a far-right party won 13% of the vote, making it the first far-right party in more than 60 years to gain entry into parliament. Merkel will need to form a coalition to govern, a job made more difficult by her own party’s losses and an announcement by  her former coalition party that it now plans to be in the opposition.