Fed leaves rates unchanged

Also, the officials addressed the balance sheet issue, something that had come up before mostly in the minutes following FOMC meetings.

The committee issued a separate three-paragraph statement noting that “it is appropriate at this time to provide additional information regarding its plans to implement monetary policy over the long run.”

The Fed’s balance sheet consists mostly of a mix of Treasurys and mortgage-backed securities which it purchased in an effort to lower long-run rates and stimulate the economy during and after the financial crisis. At its peak, the balance sheet ran to $4.5 trillion after being less than a $1 trillion before the stimulus program began.

Starting in October 2017, the Fed began allowing a capped level of proceeds from the securities to roll off each month while reinvesting the rest. Fed officials had anticipated the roll-off to proceed with little market impact, but investors have grown skittish over “quantitative tightening” as opposed to easing, since.

At this week’s meeting, the FOMC made clear that it was willing to reconsider the program should conditions warrant, and is not on autopilot as Powell had suggested.

The statement closely reflected language from a policy normalization document in mid-2017, but the decision to separate it out into its own document stood out.

“The Committee is prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments,” the statement said.

Moreover, the statement said the Fed “would be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.”

The latter part of the statement is notable in that Fed officials have always stressed the benchmark funds rate as the key tool for policy.

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