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Fed Minutes May Give Clues on Timing of Balance-Sheet Runoff
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Loading...Federal Reserve officials have mapped out plans to reduce their $4.5 trillion balance sheet, but they’ve left out one key detail: the starting point.
Clues about whether they’ll begin the asset reduction before another rate hike could come from the record of policy makers’ debate last month. Minutes of that June 13-14 meeting will be released at 2 p.m. on Wednesday in Washington.
Economic data have shown little change since their last meeting, so the minutes should offer an up-to-date glimpse into how officials view the backdrop as they weigh policy decisions. They’ll also kick off a busy few days for Fed watchers, with its Monetary Policy Report due Friday and Yellen’s semi-annual testimony to Congress beginning on July 12.
Investors will be looking for validation of a working assumption that the policy-setting Federal Open Market Committee will commence balance-sheet roll-off in September and wait for December to hike rates. That view is backed up by pricing in federal funds futures contracts, which shows about a 40 percent probability of a rate hike in December -- twice as high as the betting on a move at the September FOMC.
Another topic that could be an important take-away from the June minutes is the level of concern among officials over financial stability after several, including Yellen, spoke out about high asset prices. The description of the discussion last month may shed light on how widely that view is held.
It wouldn’t be surprising to find more color on the discussion in the June minutes: The Fed’s description of its meeting in May showed that some policy makers were alert to high commercial real-estate valuations, and the Fed staff remarked that “asset valuation pressures in some markets were notable.”
A lot of attention will be paid to how officials lined up over the debate on recent weak readings on inflation, which has dropped farther below the Fed’s 2 percent goal.
Source: Bloomberg Pro Terminal
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