FOMC “Reducing Debt Holdings to Start ‘Relatively’ Soon”
Fed officials said they would begin running off their $4.5-T balance sheet “relatively soon” and left their benchmark policy rate unchanged as they assess progress toward their inflation goal.
The start of balance-sheet normalization is another policy Milestone in an economic recovery now in its 9th year. The Fed bought trillions of dollars of securities to lower long-term borrowing costs after its policy rate was cut to Zero in December 2008.
“Near-term risks to the economic outlook appear roughly balanced,” the Federal Open Market Committee (FOMC) said in a statement Wednesday following a 2-day meeting in Washington. “Household spending and business fixed investment have continued to expand.”
Fed watchers anticipate that of the term “relatively soon” would signal the Fed could announce the timing of their balance-sheet reduction program at its meeting in September.
The Fed said “the committee is monitoring inflation developments closely.”
US central bankers have raised the benchmark policy rate 4X since they began removing emergency policy in December 2015, and project another increase before the end of this year.
Fed Chairwoman Janet Yellen has allowed the labor market to strengthen while inflation has remained lower than their 2% goal, with price pressures declining in recent months. The target range for the policy rate was held at 1 to 1.25%.
Wednesday’s statement highlighted that a period of weak inflation continues. “On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined and are running below 2%,” the statement said.
The FOMC retained language that it expects to keep raising interest rates at a “gradual” pace if economic data play out in line with forecasts.
“The committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal,” the statement said.
The vote was unanimous.