The Fed says it'll be appropriate to raise interest rates again 'soon'
"The Federal Reserve is set to continue raising interest rates, with most officials seeing further tightening as appropriate "soon," minutes of its May meeting published Wednesday showed.
As expected, the Federal Open Market Committee left its benchmark interest rate unchanged in May, and markets anticipate that it would hike again at the June meeting. CME's FedWatch Tool reflects an 83.1% probability that the FOMC will increase the target rate to a range of 1% to 1.25%.
The Fed's statement after its May meeting indicated that the FOMC thought economic weakness in the first quarter was transitory. In the minutes, Fed staff members pointed to soft consumer spending and inventory investment as reasons for the slowdown, not a quirk related to how the Commerce Department accounts for seasonal peculiarities in the first quarter.
The $4.5 trillion balance sheet
This year, equal attention is being paid to another part of the Fed's normalization process after years of interest rates near zero: paring down its $4.5 trillion balance sheet. The Fed beefed up its balance sheet by buying Treasurys and other securities to help keep borrowing costs low after the financial crisis.
In the minutes, the Fed said it would announce gradually increasing limits on the dollar amounts of Treasurys and other securities that would be allowed to run off into maturity each month. The Fed proposed to raise the caps gradually every three months.
Only the amounts of securities repayments that exceed those caps would be reinvested. As the limits increase, reinvestments would fall, and the monthly reductions in the Fed's balance sheet would become larger.
"Nearly all policymakers expressed a favorable view of this general approach," the minutes said. "The approach would also likely be fairly straightforward to communicate."
In the prior minutes, the Fed said it planned to change its reinvestment policy — by halting bond purchases or selling them — later this year. On Tuesday, the Philadelphia Fed's president, Patrick Harker, said in New York that the Fed intended to be "as boring as possible." That means it wants to be quite slow and calculated so market participants are not spooked at any stage."