Published: Thu, April 06, 2017
Global Media | By Garry Long

Most Fed officials consider reduce balance sheet later this year: Minutes

Most Fed officials consider reduce balance sheet later this year: Minutes

Most Federal Reserve officials said they backed a policy change that would begin shrinking the central bank's $4.5 trillion balance sheet later this year, as they reiterated their outlook for gradual interest-rate increases.

Minutes from the Fed's March meeting revealed that most policymakers "judged that a change to the committee's reinvestment policy would likely be appropriate later this year".

Stocks in the United States have closed lower, reversing their gains from a rally earlier in the session, after the release of the minutes from the Federal Reserve's latest meeting.

The Fed minutes of the March meeting showed policy makers wanted to move away, or slow, their post-crisis policy of reinvesting in Treasury bills and mortgage-backed securities, for which the Fed has built up a US$4.5 trillion balance sheet.

When the time comes to implement a change to reinvestment policy, participants generally preferred to phase out or cease reinvestments of both Treasury securities and agency MBS.

The minutes showed almost all of the officials judged the economy was at or near full employment, and almost all voting members believed inflation was still short of the Fed's 2 percent target.

The most recent projections from the Federal Open Market Committee, which sets the Fed's benchmark rates, were for a total of three rate hikes in 2017. But financial markets have been closely watching for any Fed signal on the timing of when the Fed would begin reducing the level of its bond holdings by halting its current practice of replacing any maturing bonds.

Pink Star diamond sells for world record $71.2m
A 59.60-carat diamond named the Pink Star has been sold for a world record fee at a auction for $71.2m (£57m) in Hong Kong . In November 2013 it was auctioned for a record $ 83 million to NY diamond cutter Isaac Wolf, who failed to pay.

The minutes said that because of the "substantial uncertainties" about the outlines of the program that might eventually emerge from Congress, about half the Fed officials had included no assumptions about Trump's efforts in their economic forecasts. But some said there were also downside risks from a possible adverse economic reaction resulting from Trump's measures to limit immigration and increase trade barriers to protect American workers.

The Fed's next policy meeting is scheduled for May 2-3 while investors now expect another rate rise in June.

The voting members of the Fed's policy committee said they expected headline inflation might rise a bit above the 2% target in the near term, but only temporarily.

"Some participants viewed equity prices as quite high relative to standard valuation measures", the minutes said.

Before the release of the minutes, Fed funds futures put the odds of a rate hike in June at more than 63.4 per cent.

While Fed officials were prepared for a weak first-quarter GDP reading, they believed any slowdown in the first quarter was temporary.

Like this: