US Federal Reserve officials said they would begin running off their US$4.5 trillion 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 — possibly as soon as September — is another policy milestone in an economic recovery now in its ninth year. The Fed bought trillions of US dollars of securities to lower long-term borrowing costs after cutting the main interest rate 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 on Wednesday following a two-day meeting in Washington. “Household spending and business fixed investment have continued to expand.”
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Fed watchers had anticipated that the inclusion of the term “relatively soon” would signal the central bank could announce the timing of the balance-sheet reduction program at its next meeting, scheduled for Sept. 19 to Sept. 20.
US stocks rose slightly and 10-year Treasury yields fell following the Fed’s statement.
US central bankers have raised the benchmark policy rate four times since they began removing emergency policy in December 2015, and project another increase before the end of this year.
Last month, the FOMC outlined gradually rising runoff caps for maturing Treasuries and mortgage-related securities, and said the program would start “this year.”
Fed Chair Janet Yellen has allowed the labor market to strengthen while inflation has remained lower than the 2 percent goal of officials, with price pressures declining in recent months.
The target range for the benchmark federal funds rate was held at 1 percent to 1.25 percent.
The committee said it was “monitoring inflation developments closely.”
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 percent,” the statement said.
US unemployment was 4.4 percent last month, below the Fed’s 4.6 percent estimate of full employment.
Inflation has missed the central bank’s target for most of the past five years.
The Fed’s preferred price measure climbed 1.4 percent in May compared with one year ago.
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 on Wednesday’s decision was unanimous.
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