Fed raises rates, unveils balance sheet cuts in sign of confidence

Federal Reserve Board Chairwoman Janet Yellen arrives for a news conference after the Fed releases its monetary policy decisions in Washington, U.S., June 14, 2017.   REUTERS/Joshua Roberts
Federal Reserve Board Chairwoman Janet Yellen arrives for a news conference after the Fed releases its monetary policy decisions in Washington, U.S., June 14, 2017. REUTERS/Joshua Roberts

The Federal Reserve raised interest rates on Wednesday for the second time in three months and said it would begin cutting its holdings of bonds and other securities this year, signalling its confidence in a growing U.S. economy and strengthening job market.

In lifting its benchmark lending rate by a quarter percentage point to a target range of 1.00 percent to 1.25 percent and forecasting one more hike this year, the Fed seemed to largely brush off a recent run of mixed economic data.

The U.S. central bank’s rate-setting committee said the economy had continued to strengthen, job gains remained solid and indicated it viewed a recent softness in inflation as largely transitory.

The Fed also gave a first clear outline on its plan to reduce its $4.2 trillion (3.29 trillion pounds) portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in the wake of the 2007-2009 financial crisis and recession.

It expects to begin the normalization of its balance sheet this year, gradually ramping up the pace. The plan, which would feature halting reinvestments of ever-larger amounts of maturing securities, did not specify the overall size of the reduction.

“What I can tell you is that we anticipate reducing reserve balances and our overall balance sheet to levels appreciably below those seen in recent years but larger than before the financial crisis,” Fed Chair Janet Yellen said in a press conference following the release of the Fed’s policy statement…

Read more : Reuters, 15.06.2017