Wednesday, July 5, 2017

Fed to Consider Shrinking Balance Sheet in Coming Months

The Federal Open Market Committee indicated support for continued gradual rate increases in minutes from their June 13-14 meeting. The Committee voted to lift rates 25 basis points in June and signaled one more hike in 2017 in updated projections. The minutes reflected continued division on the timing of shrinking the Fed’s balance sheet, though the Committee expects to begin implementing a normalization program this year.

Participants’ views on current conditions and the economic outlook questioned the cause of rising asset prices. Some participants suggested an “increased risk tolerance” might be contributing to elevated asset prices, while a few participants offered concern that subdued market volatility, along with a low equity premium, could increase risks to financial stability.

The Committee’s minutes noted that optimism about business prospects “appeared to have recently abated somewhat” as Congress continues to debate healthcare, diminishing the likelihood of a significant fiscal stimulus. “Contacts at some large firms indicated that they had curtailed their capital spending, in part because of uncertainty about changes in fiscal and other government policies,” the minutes showed.

Read the FOMC minutes.

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