Fed Minutes Will Be Parsed for News on Balance Sheet Plans

Fed Minutes Will Be Parsed for News on Balance Sheet Plans

Several Federal Reserve officials wanted to start reducing the trillions of dollars of assets held by the central bank "within a couple of months" to accelerate the return to a more normal monetary policy after years of battling the Great Recession, according to an account released Wednesday of their most recent meeting. Meanwhile, several other participants "expressed concern that a substantial and sustained unemployment undershooting might make the economy more likely to experience financial instability or could lead to a sharp rise in inflation".

USA central bankers are divided over the near-term risk of inflation and disagree over the timing of interest rate hikes into next year, minutes of the last Federal Reserve meeting showed Wednesday. One of the goals of gradually unwinding the balance sheet would be to not disrupt broader economic growth despite the possibility of rising long-term rates.

The minutes from the June meeting offered no new indications of when the next rate hike would come.

The Fed had signaled earlier this year that it planned to end the policy of reinvesting the proceeds from maturing debt in yet more bonds, which could have a similar effect to increasing interest rates.

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The increase was the Fed's second of the year and was taken as a vote of confidence in the US economic recovery and future pace of growth.

William Dudley, the president of the Federal Reserve Bank of NY, has suggested the Fed might need to raise rates more quickly in order to achieve its goals. Fed policymakers voted 8-1 in June to nudge up the benchmark federal funds rate.

The minutes also showed central bankers divided over precisely when to begin reducing the Fed's massive balance sheet, a task that they have indicated they will begin before the end of the year. The minutes said some participants see evidence that investors are taking larger risks and a few are concerned about "a buildup of risks to financial stability".

In a press conference following the conclusion of the June meeting, Yellen attributed lower inflation in part to temporary factors, like one-off decreases in the prices for cell phone services and prescription drugs. The rate-setting committee is next scheduled to meet to decide interest rate policy on July 25-26. The Committee expected to begin implementing a balance sheet normalization program in 2017, provided that the economy evolves broadly as anticipated.

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