Fed to Begin Reducing Balance Sheet in October

The Federal Open Market Committee said it will begin reducing the Fed’s balance sheet in October, according to a statement from the committee released yesterday. The balance sheet is swollen with $4.5 trillion in securities purchased as part of quantitative easing programs between 2008 and 2014. The committee also decided to hold rates at 1 to 1.25 percent, citing “realized and expected labor market conditions and inflation.”

FOMC members acknowledged that the recent hurricanes “will affect economic activity in the near term,” but that growth will temper by the medium term. Consequently, they said that they expect to see economic activity expand at a “moderate” pace. They also agreed that the timing and size of future rate hikes will follow “careful” monitoring of economic conditions and “will depend on the economic outlook as informed by incoming data.” As with previous statements, the committee expects “that economic conditions will evolve in a manner that will warrant gradual increases.”

Economic projections were updated with a few notable changes from the most recent projections, released in June. GDP growth expectations for 2017 increased slightly from 2.2% to 2.4%, and the 2019 projection increased from 1.9% to 2.0%. Unemployment rate projections lowered from 4.2% to 4.1% for both 2018 and 2019. The committee shifted the projected federal funds rate for 2019 from 2.9% to 2.7%, lowering the longer run rate from 3.0% to 2.8%.

Read the FOMC Statement.

Read FOMC’s Economic Projections.