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Fed flags end up to the outflow of the balance sheet, patience in the interest rates

(Reuters) – The US Federal Reserve signaled Wednesday that they will soon come up with a plan to stop letting 4 trillion US dollars in debt and other assets. However, policymakers are still debating how long their recently adopted "patient" stance on US interest rate policy will continue.

Currently, policymakers see little risk leaving interest rates alone as they take the time to assess the rising risks, including a global slowdown, such as the Fed's Wednesday 29-30 January timeline Was published Wednesday describes.

Although "several" participants thought that an interest rate hike would only be needed if inflation rose unexpectedly strongly, "several other participants indicated that the economy would be considered appropriate in the anticipated economic development to set the target range for the economy Federal funds set later this year. "

These shared views indicate that the central bank has not completed its three-year interest rate hike campaign, but has merely paused for a longer period. In January, the Fed surprised markets by stating that it would be patient to adjust the target range for short-term interest rates, which now range between 2.25% and 2.5%.

The surprisingly modest decision was made against the backdrop of growing risks to the US economy, including a slowdown in Chinese and European economies and a slowdown in 2018 US tax cuts.

A number of US Federal Reserve policymakers have been talking since the Fed's US Federal Reserve in January assured patience that the economy is in a good position.

However, doubts persist as traders in US interest rate futures contracts place increasing stakes, which the Fed is expected to release early next year to counteract a downturn.

The tone of the protocol was "not binding," said Ward McCarthy, an economist at Jefferies LLC.


Meanwhile, the Fed's policymakers seem to have come together to work on a plan to make their balance bigger than ever before, as the minutes show.

"Almost all participants considered it desirable to announce a plan some time ago so as not to further reduce the US Federal Reserve's holdings this year," the minutes said.

The US Federal Reserve absorbed government bonds and mortgages following the 2007-09 recession, but policymakers began to reduce these positions in the final months of 2017.

FILE PHOTO: A security guard walks in front of a Federal Reserve image after the two-day meeting of the Federal Open Market Committee (FOMC) in Washington, DC on March 16, 2016. REUTERS / Kevin / File Photo

The researchers presented options at the meeting "to significantly slow down the outflow of the Fed's balance sheet", "sometime in the second half of this year". The outflow is currently limited to $ 50 billion per month.

Bob Miller, head of US multi-sector Fixed Income at BlackRock Inc., said he expects a balance sheet plan from the Fed to the minutes of the meeting in May, a decision on the matter by June and a stop to the US runoff election Government until October. If not in July, this will help US financial conditions and markets, he said. "The fact is that the committee has spent three consecutive political sessions debating the balance sheet in detail, which speaks to us of some urgency in dealing with the issues of the future," Miller said in a statement.

Arrangement by Chizu Nomiyama and Susan Thomas

Our standards:The Thomson Reuters Trust Principles.



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