‘What I can tell you is that we anticipate reducing reserve balances and our overall balance sheet to levels appreciably below those seen in recent years but larger than before the financial crisis.’ – Janet Yellen, Federal Reserve
As markets expected, the Federal Reserve raised its interest rates at the end of its meeting on Wednesday, adding that it would start cutting its Treasury bonds and other securities this year amid solid economic growth and strong employment trends. Despite the release of weak retail sales and inflation figures earlier in the day, policymakers voted to lift its benchmark lending rate to a target range of 1.00-1.25% and predicted one more rate hike this year. The Bank said the economy remained on a steady growth path and continued generating new jobs. Moreover, policymakers noted that the most recent slowdown in inflation was driven by transitory factors. The Fed also said that it would soon start reducing its $4.2T portfolio of Treasury bonds and other securities. The Fed Chair said that the Bank would start cutting its Treasury holdings by $6B per month and increase the size of cuts by $6B every three months until they hit $30B per month. The Bank’s mortgage-backed securities would be a subject to a $4B monthly cap that would continue rising by $4B on a three-month basis until it reaches $20B per month.
