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Thursday, 10 January 2019 13:00

Fed may be open to changes

Fed may be open to changes

Federal Reserve policymakers have indicated they may be open to tweaking a longstanding plan to shrink the central bank’s balance sheet, including by shedding housing-backed bonds earlier than anticipated or keeping a bigger-than-expected portfolio of assets, Caspian Energy News (www.caspianenergy.net) reports with reference to Reuters.

Those were among a range of options discussed at the Fed’s December meeting, minutes released on Wednesday showed. The discussion will continue at future meetings, the minutes said.

The Fed for years bought bonds to stimulate a moribund economy, eventually accumulating a $4.5 trillion balance sheet, but began reversing course in 2013, first by slowing its bond-purchases and then, in 2017, allowing the portfolio to shrink.

The Fed is now trimming its holdings by $50 billion each month, an amount intended to reduce the portfolio to a more “normal” size over a number of years without putting too much pressure on the Fed’s short-term policy rate.

It has now shed more than $380 billion worth of U.S. Treasuries and mortgage bonds. But reserves are declining at a much faster rate, dropping to $1.51 trillion at the end of 2018, from a 2014 peak of more than $2.7 trillion.

If reserves become too scarce, demand for them could push the Fed’s key policy rate above its target band, now set at 2.25 percent to 2.5 percent. The Fed has already made a couple of technical adjustments to keep that from happening, and the minutes show policymakers may do so again.

Policymakers also discussed other options to maintain control of rates, including the possibility of holding a larger “buffer” of securities, or slowing the pace of decline in reserves as they approach the desired longer-run level.

More details: https://www.reuters.com/article/us-usa-fed-minutes-balancesheet/u-s-fed-may-be-open-to-changes-to-balance-sheet-plan-minutes-show-idUSKCN1P404I

Person in charge of the newsline: Olga Nagiyeva 

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