Fed Explains Pause as Officials Debate Future Rate Increases

The Fed has slowly been winnowing that $4 trillion portfolio by allowing up to $50 billion in bonds to mature each month, but officials appeared to agree in January that the balance sheet runoff should end this year.

Officials agreed that “it would be desirable to announce before too long a plan to stop reducing the Federal Reserve’s asset holdings later this year” and said the announcement “would provide more certainty about the process for completing the normalization of the size of the Federal Reserve’s balance sheet.”

The minutes also highlighted just how hard it is for the Fed, which does not traffic in plain language, to always effectively communicate its plans. At the January meeting, Fed officials noted that investors were perceiving the central bank to be “insufficiently flexible” in both its rate increase campaign and its balance sheet runoff.

Fed officials tried to change those perceptions after both the December and January meetings. The Fed chairman, Jerome H. Powell, said in a news conference on Jan. 30 that officials had concluded that recent economic developments — including slowing global growth, turmoil in financial markets and uncertainty over trade negotiations — had pushed the central bank to “a patient, wait-and-see approach regarding future policy changes.”

“We are now facing a somewhat contradictory picture of generally strong U.S. macroeconomic performance, alongside growing evidence of crosscurrents,” Mr. Powell said. “At such times, common sense risk management suggests patiently awaiting greater clarity.”

Curt Long, the chief economist at the National Association of Federally-Insured Credit Unions, said the minutes revealing the shift to a more “patient” stance were “certainly a nod to jittery markets.”

Greg McBride, the chief financial analyst for Bankrate.com, was more blunt: “It’s evident the Fed was rattled by the markets and caved,” he wrote on Wednesday.

Article source: https://www.nytimes.com/2019/02/20/business/economy/fed-interest-rates-minutes.html?partner=rss&emc=rss