Fed Minutes: FOMC Eyes Change to Debt Holdings Policy Ahead

Fed Minutes: FOMC Eyes Change to Debt Holdings Policy Ahead

Fed Minutes: FOMC Eyes Change to Debt Holdings Policy Ahead


Most FOMC policymakers think the Fed should take steps to begin trimming its $4.5-T balance sheet later this year as long as the economic data holds up, minutes from their March meeting revealed.

Uncertainty is substantial, the Fed said, comment on how you read that statement please.

The minutes released Wednesday of the  14-15 March discussion, at which the Fed voted 9-1 to raise interest rates, also showed that the rate-setting committee had a broad discussion about whether to phase out or halt re-investments all at once.

“Provided that the economy continued to perform about as expected, most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee’s reinvestment policy would likely be appropriate later this year,” the Fed said in the minutes.

US Treasury yields rose sharply after the release of the minutes, the USD briefly slipped, while stocks cut gains across the board

Fed policymakers previously indicated that any plan to shrink its portfolio would let the bonds naturally roll off, by not reinvesting them when they mature, once its interest rate hikes were “well under way.”

The Fed’s lifted its benchmark interest rate in March to a target range of between 0.75 and 1 percent, its 2nd hike in 3 months, and signaled it remained on track to lift rates 2X more this year.

In the minutes, almost all policymakers agreed that the timing of a change in balance sheet policy would depend on economic and financial conditions and generally preferred to taper or stop investments in both Treasury and mortgage-backed bonds.

An approach that phased out re-investments was seen as less likely to trigger financial market volatility while doing so all at once “was generally viewed as easier to communicate while allowing for somewhat swifter normalization of the size of the balance sheet.”

They all agreed that shrinking the balance sheet should be gradual and predictable and nearly all said that any altering of the policy “should be communicated…well in advance of an actual change.”

Elsewhere in the minutes policymakers appeared to see Northside risks to the economy, while there was still disagreement on how close the Fed was to meeting its 2 percent inflation goal this year. In its March policy statement, the Fed said that its inflation target was “symmetric,” indicating it could tolerate price rises temporarily overshooting its 2% target rate.

Along with the minutes, the Fed published a set of  “fan charts” to show the extent of uncertainty around their Quarterly economic forecasts.

Uncertainty is substantial, the Fed said, comment on how you read that statement please.

The Fed’s next policy meeting is scheduled for 2-3 May.

Wednesday, the US major stock market indexes finished at: DJIA -41.09 at 20648.70, NAS Comp -34.13 at 5864.49, S&P 500 -7.21 at 2352.94

Volume: Trade was heavy with 1.13-B/shares exchanged on the NYSE

  • NAS Comp +8.9% YTD
  • S&P 500 +5.1% YTD
  • DJIA +4.5% YTD
  • Russell 2000 -0.4% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Bullish (0.35) Neutral (0.18) Bullish (0.46) Bullish (0.42)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Bullish (0.45) Neutral (0.17) Very Bullish (0.58) Very Bullish (0.58)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Bullish (0.42) Bullish (0.42) Bullish (0.35) Very Bullish (0.50)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Bearish (-0.41) Bearish (-0.31) Very Bearish (-0.59) Bearish (-0.33)

Stay tuned…


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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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