US Federal Reserve addresses balance sheet and rate hikes in FOMC meeting
The Fed reveals why it was patient on interest rate hikes.
The US Federal Reserve just released minutes from its last Federal Open Market Committee (FOMC) meeting. The meeting reveals why the Fed was patient about rate hikes and how they will deal with its balance sheet.
Why is the Fed being patient about rate hikes?
The Federal Reserve chair, Jerome Powell, decided to pause a raise in interest rates last month. The decision was a reversal of its earlier move in raising rates in fall 2018. The rate hikes caused Wall Street volatility, which may have influenced its latest move. In its January meeting, the Fed detailed why it put a hold on the rate hikes.
'Participants pointed to a variety of considerations that supported a patient approach to monetary policy at this juncture as an appropriate step in managing various risks and uncertainties in the outlook,’ read the minutes.
‘A patient posture would allow time for a clearer picture of the international trade policy situation and the state of the global economy to emerge and, in particular, could allow policymakers to reach a firmer judgment about the extent and persistence of the economic slowdown in Europe and China,’ added the Fed.
While the Fed officials voted unanimously to put rates on hold because of volatility in the US economy, there was a division among the officials about how long to halt the rate hikes. Some want to pause rate hikes only when inflation was high, while others wanted to raise rates by the end of 2019.
What did the Fed say about its balance sheet?
The US central bank officials also discussed bond reduction on its balance sheet, according to the FOMC meeting minutes. ‘Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve's asset holdings later this year. Such an announcement would provide more certainty about the process for completing the normalization of the size of the Federal Reserve's balance sheet,’ read the FOMC meeting minutes. Fed officials also discussed how important it was to be open in its balance sheet normalization.
‘Consistent with this principle, participants agreed that it was important to be flexible in managing the process of balance sheet normalization, and that it would be appropriate to adjust the details of balance sheet normalization plans in light of economic and financial developments if necessary to achieve the Committee’s macroeconomic objectives,’ noted the minutes.
The Federal Reserve’s latest meeting minutes show that while the Fed is independent of Wall Street, the US stock market and the economy weigh more on the Fed than previously thought.
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.
Please see important Research Disclaimer.
European Central Bank meeting
Learn about how the ECB meeting affects interest rates and price stability ahead of the next announcement on 24 October 2019.
- How might the next meeting affect the markets?
- What are the key rate decisions to watch?
- Why is the Governing Council announcement important for traders?
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.