Federal Reserve officials said they would begin running off their $4.5 trillion balance sheet “relatively soon” and left their benchmark policy rate unchanged as they assess progress toward their inflation goal.
The start of balance-sheet normalization -- possibly as soon as September -- is another policy milestone in an economic recovery now in its ninth year. The Fed bought trillions of dollars of securities to lower long-term borrowing costs after its policy rate was cut to zero in December 2008.
“Near-term risks to the economic outlook appear roughly balanced,” the Federal Open Market Committee said in a statement Wednesday following a two-day meeting in Washington. “Household spending and business fixed investment have continued to expand.”
Fed watchers anticipated that the inclusion of the term “relatively soon” would signal the Fed could announce the timing of their balance-sheet reduction program at its meeting in September.
The Fed said “the committee is monitoring inflation developments closely.”
Another Increase
U.S. central bankers have raised the benchmark policy rate four times since they began removing emergency policy in December 2015, and project another increase before the end of this year.
In June, the FOMC outlined gradually rising runoff caps for maturing Treasuries and mortgage-related securities, and said the program would start “this year.”
Fed Chair Janet Yellen has allowed the labor market to strengthen while inflation has remained lower than their 2 percent goal, with price pressures declining in recent months. The target range for the policy rate was held at 1 percent to
1.25 percent.
Wednesday’s statement highlighted that a period of weak inflation continues. “On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined and are running below 2 percent,” the statement said.