(Reuters) – The Federal Reserve on Wednesday announced a plan to end the $ 4 trillion depreciation of bonds and other assets, but policymakers still wonder how long the "patient" stance on US rate will last.
For now, policymakers see little risk in leaving interest rates alone while taking the time to assess growing risks, including a global slowdown, according to the Fed's meeting minutes. and January 30, published Wednesday.
Although "many" participants thought that an increase in rates would only be necessary if inflation unexpectedly increased, "several other participants indicated that, if the economy changed as expected, they would would consider it appropriate to subsequently raise the target range for the federal funds rate. this year."
These divergent views suggest that the central bank may not yet have ended its three-year interest rate hike but simply suspended it. In January, the Fed surprised markets by stating that it would be patient to adjust its target range to short-term interest rates, currently between 2.25% and 2.5%.
The surprisingly accommodating decision came in the midst of growing risks to the US economy, including the slowdown in the Chinese and European economies and the relaxation of stimulus measures stemming from the 2018 tax cuts in the United States.
Since the Fed's promise of patience last January, many politicians have said the economy is doing well.
But doubts remain as US interest rate futures traders are increasingly betting on the fact that the Fed will have to soften its policy early next year to face a recession.
According to Ward McCarthy, an economist at Jefferies LLC, the tone of the minutes was "resolutely devoid of commitment."
Meanwhile, Fed policymakers seem to be clustering around a plan to leave their balance sheet ever larger than ever, the minutes of the meeting showed.
"Almost all participants felt that it would be desirable to announce too early a plan to stop reducing the holdings of the Federal Reserve later this year," the minutes said.
The Fed has absorbed government bonds and mortgages as a result of the 2007-2009 recession, but policymakers have begun to reduce them in the last months of 2017.
The research staff presented options at the meeting to "significantly slow down" the flow of the Fed's balance sheet, "sometime in the second half of this year". The flow is currently capped at $ 50 billion a month.
Bob Miller, head of US multi-sector fixed income at BlackRock Inc., said he's now waiting for a Fed's stocktaking plan from here the minutes of the May meeting, a decision on it. in June and a stoppage of Fed runoff in October, if not July. This will help the financial conditions and the US markets, he said. "The fact is that the committee has spent three consecutive policy meetings discussing the balance sheet in detail, suggesting some urgency to answer questions about its future," Miller said in a note.
Edited by Chizu Nomiyama and Susan Thomas