US Fed official backs balance sheet reduction soon

Judith Bessette
Julho 12, 2017

"I will want to monitor inflation developments carefully, and to move cautiously on further increases in the federal funds rate, so as to help guide inflation back up around our symmetric target", she said. If that is the case, we would not have much more additional work to do on moving to a neutral stance. A 2.1 percent annual increase in February was the only month since 2012 the index's annual increase exceeded the Fed's target, according to the Journal.

She warned that raising interest rates and trimming bloated balance sheets, while having similar effects on domestic economic conditions, could carry very different cross-border implications.

Williams emphasized that if inflation did not accelerate as expected, that would argue for a much slower pace of rate rises than now projected.

On Tuesday, Brainard expressed concerns over the low inflation in recent months, and would take a cautious approach in weighing on interest rate hike. With unemployment stable and below the Fed's 5 percent target, but wages largely stagnant, the bank must determine how quickly it can raise rates.

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Traders are looking ahead to Congressional testimony from Federal Reserve Chair Janet Yellen Wednesday.

Observers will also seek answers from Yellen on how the Fed will release $4.5 trillion in bonds and debt purchased during the recession to stabilize financial markets.

Market analysts now expect the Fed might start the balance sheet reduction as early as in September.

"If the data continue to confirm a strong labor market and firming economic activity, I believe it would be appropriate soon to commence the gradual and predictable process of allowing the balance sheet to run off", said Brainard in a speech at a conference sponsored by the Columbia University and the Federal Reserve Bank of NY.

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