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Feds: Balance sheet to be reduced later in 2017
Balance sheet reduced

The cartoon shows the reduction in balance sheet by the Federal Reserve.

After the release of the Federal Reserve policymakers minutes, the dollar had momentarily declined while Wall Street stocks dropped. Initially, the treasury yields had a sharp increase but then, it decreased.

 

The minutes released by the Fed on Wednesday is on the March 14 to 15 policy discussion. According to the minutes, most of the Fed felt that a reduction in the $4.5 trillion balance sheet should be done later in the year if the current economic data persists.

 

If the economic performance is as expected, there is likelihood of steady increase in federal fund rate and change to the reinvestment policy would be apt to start later in the year.

 

During the March 14 to 15 policy discussion, the Fed had also voted for an increase in the interest rate and discussed whether to phase out or halt all of the investments.

 

The Fed will proceed with two more increase in the interest rate this year. In March, a vote had been made to raise their benchmark interest rates between 0.75 and 1.00%. It was the second increase in three months.

 

Majority of the policymakers had agreed that the timing of the balance sheet policy is contingent on the conditions of the economic and financial states. They also prefer to pace out or stop investments.

 

The policymakers had come to an agreement that the change in the balance sheet should be implemented slowly and calculated. It had also been decided that communication is vital before any changes is to be made.

 

The next policy meeting will be held on May 2 to 3. Another rate increase is expected to occur in June.

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