Money Runners

[TPX]

Seeing another rate hike ‘soon’, Fed outlines plan to reduce bond holdings, minutes show

May 24, 2017

Federal Reserve officials were in broad agreement in their May meeting to shrinking the bank’s massive balance sheet, according to minutes of the session released Wednesday.

The Fed does not want to sell the assets on its $4.5 trillion balance sheet, preferring to let it shrink as the securities mature. At the moment, the central bank is reinvesting the principal of the maturing securities to hold the balance sheet steady.

The minutes show nearly all Fed officials said they were content with a plan to end the reinvestment of principal of maturing securities in slow, ever-increasing, stages, rather than ending the reinvestment all at once.

Under the approach, only a small of securities would be allowed to roll off at first, but the amount would increase in regular increments. The caps would be set at initially at low levels and then be raised every three months.

Officials said that this approach would be on auto-pilot, unless there was a major deterioration to the economic outlook.

The specificity of the plan could suggest the Fed may be ready to start shrinking the balance sheet sooner than its December meeting, which was the consensus view of most Fed watchers prior to the release of the minutes.

In their discussion of interest rate policy, most Fed officials said it would “soon” be time to raise rates again, a signal that the majority on the central bank remain resolute about hiking rates at their meeting next month.

Officials said the economy would rebound from the weak first quarter. And most officials thought that soft March inflation data was not the start of a new trend. The soft April consumer price report was not available at the meeting.

The discussion of the outlook showed widening divisions among Fed officials, with “several” seeing a possible need to start raising rates at a faster pace, while a few others thought a slower pace was more advisable.

http://www.marketwatch.com/story/seeing-another-rate-hike-soon-fed-outlines-plan-to-reduce-bond-holdings-minutes-show-2017-05-24