Fed officials plan to reduce the balance sheet by $95 billion a month
Key takeaways:
- Fed officials agreed to start shrinking the central bank balance sheet by $95 billion a month at their March meeting, probably in May.
- There were firm signs that interest rate gains are ahead by a half-percentage point or 50 basis points.
Federal Reserve officials discussed how they want to lower their trillions in bond holdings at the March meeting, with a consensus of about $95 billion a month, minutes released Wednesday indicated.
Officials “generally approved” that a most of $60 billion in Treasurys and $35 billion in mortgage-backed securities would be permitted to roll off, phased in over three months, and probably beginning in May. That sum would be almost double the rate of the last effort, from 2017-19, and represent a portion of a historic switch from ultra-easy monetary policy.
In addition to the balance sheet discussion, officials also discussed the pace of interest rate spikes ahead, with members leaning toward more aggressive actions.
At the March 15-16 meeting, the Fed agreed to its first interest rate growth in almost three years. The 25 basis point climb— a quarter percentage point — raised the benchmark short-term borrowing rate from the near-zero level where it had been since March 2020.
The minutes, I thought, meant possible rate hikes of 50 basis points at upcoming meetings, a level compatible with market pricing for the May vote. There was significant sentiment to go higher the previous month.
Tension over the fighting in Ukraine prevented some officials from going with a 50 basis point move in March.
“Multiple participants reported that one or more 50 basis point gains in the target range could be suitable at future meetings, particularly if inflation pressures remained high or intensified,” the minutes stated.