Instant View: March FOMC minutes – Balance sheet reduction could start in May
2022.04.06 21:52
FILE PHOTO: The Federal Reserve building is seen before the Federal Reserve board is expected to signal plans to raise interest rates in March as it focuses on fighting inflation in Washington, U.S., January 26, 2022. REUTERS/Joshua Roberts/File Photo
NEW YORK (Reuters) – Federal Reserve officials “generally agreed” last month to trim $60 billion per month from the U.S. central bank’s Treasury holdings and $35 billion from its holdings of mortgage-backed securities, with the amounts phased in over a period of three months “or modestly longer,” according to minutes of the March 15-16 policy meeting.
Participants also “generally agreed” that after the balance sheet runoff was “well underway” it would be appropriate to consider outright sales of MBS, according to the minutes, which were released on Wednesday.
No final decision was made, the minutes said, but officials made “substantial progress” and could “begin the process of reducing the size of the balance sheet as early as after the conclusion” of the May 3-4 policy meeting.
STORY:
MARKET REACTION:
STOCKS: The S&P 500 extended losses after briefly paring, and was 1.53% lower
BONDS: The yield on the 10-year Treasury note rose to 2.6144%. The 2-year note slipped to 2.5244%.
DOLLAR: The US dollar index extended a gain to 0.26%
COMMENTS:
ALAN LANCZ, PRESIDENT, ALAN B LANCZ & ASSOCIATES, TOLEDO, OHIO
“Looks like they delayed a 50-point increase because of the Russia-Ukraine conflict, which makes sense. I don’t think there’s really anything earth shattering… I think people are reading it, and realizing it’s not really a change in stance. Yesterday’s (news) was much more material to investors and their psyche than the release of the minutes. I don’t think there’s anything material that would garner a change in sentiment.”
TIM GHRISKEY, SENIOR PORTFOLIO STRATEGIST, INGALLS & SNYDER, NEW YORK
“There’s nothing new here from what I see, and that’s probably why the market is not reacting. But clearly we’ve got rate hikes ahead of us, and we have a shrinking balance sheet ahead of us. The Fed is determined to rein in inflation, and we just hope and pray that there will there will be a soft landing of the economy and not a hard landing that sends us into a recession.”
