WASHINGTON (Reuters) – It is expected that the US Federal Reserve will keep interest rates stable on Wednesday, accelerate the jump increase planned for the remainder of the year, and provide the long-awaited details of a plan to end the monthly cut of its massive balance sheet.
The Federal Reserve Board building on Constitution Avenue is pictured on March 19, 2019 in Washington, DC. REUTERS / Leah Millis
Since the beginning of this year, the US Federal Reserve has been signaling a "patient" approach to increasing the cost of credit at the end of a three-year gradual cycle of monetary tightening, marked by nine rate hikes, including seven over 2017-2018.
Investors now anticipate a likelihood of 75 percent for the likelihood that the Fed will no longer increase its Federal Funds Rate or federal funds interest rate benchmark this year, according to the FedWatch report. Tool of the CME Group. The interest rate on deposits is currently 2.25 to 2.50 per cent.
New quarterly economic and interest rate projections will be released with the latest Fed statement at 14.00. EDT (1800 GMT) will show how closely the policy makers adhere to this view. The Fed's December projection called for two increases this year. However, it is widely expected that it will be reduced to a single increase at the conclusion of the two-day political meeting on Wednesday.
It would require a downward movement of seven policy makers to bring the expected average number of increases for the year to zero. This is a one-half percentage point change that has only occurred once since the Fed began its "point plot" of forecasts to the public in 2012.
Investors may focus more heavily on the balance sheet and the Fed's plans to reduce government bond and mortgage-backed securities by up to $ 50 billion each month.
The details of this plan are also expected to be released on Wednesday. This gives investors a sense of how long the drawdown is still going on and what will likely remain in the Fed's portfolio when it stops.
The minutes of the Fed Fed meeting in late January indicated that officials "wanted to announce some time ago a plan to close down assets this year." A statement that many would have understood as the endgame for the record this week.
Half an hour after the policy statement was released, Fed Chairman Jerome Powell will hold a press conference.
Fed officials have generally pointed out that mining is coming to an end earlier than later. It may only take a few months for the central bank to reach a level where it is doing well.
"Provided the shrinking process is halted in October … The balance sheet should end up in the region at $ 3.75 trillion," Cornerstone Macro analyst Roberto Perli said in a preview of the Fed meeting this week.
That's more than three times the size of Fed positions before embarking on three rounds of quantitative easing, in which they bought trillions of dollars of government bonds and mortgage-backed securities in response to the economic crisis and recession of 2007-2009.
After the Fed built its balance sheet during the crisis and its aftermath, the Fed "normalized" in October 2017 with a steady decline of up to $ 50 billion a month.
After researching the response of the financial markets to the sinking and use of reserves held by financial institutions at the Fed, the central bank concluded that the most effective method of controlling interest rates should be to maintain reserves "abundant" and pay Interest on surpluses kept above the legal minimum requirements with the Fed, eg. B. to meet customers' cancellation claims.
With banks now demanding more reserves for a variety of uses, while increasing cash flow and other items, the Fed believes it is close to the appropriate level for its balance sheet.
The preferred final mix of assets and their accessibility is still under discussion.
Reporting by Howard Schneider; Editing by Paul Simao