WASHINGTON—At the close of its two-day policy setting meeting, the Federal Open Market Committee (FOMC) announced no change in interest rates but said it will begin winding down its balance sheet next month.
Many analysts are now projecting that the Fed will move to nudge up interest rates at the end of the year.
"With the commencement of the balance sheet wind-down, the Fed shifts its focus to the next rate hike," said NAFCU Chief Economist and Vice President of Research Curt Long. "On that front, the committee offered conflicting data. In its projections, committee members downgraded their outlook on inflation, which would naturally argue for a delay in rate increases. However, the interest rate projections indicate that the committee still expects a quarter-point hike in December, and barring anything momentous, that appears to be the likely scenario."
"The biggest downgrade was reserved for long-term rates, and the committee may see persistently weak inflation as having long-lasting effects on interest rates and monetary policy, even if the short-term impact is negligible," he added.
The Fed's balance sheet stands at roughly $4.4 trillion. It plans to reduce principal reinvestments by $10 billion next month and slowly raise the rate at which it pares the balance sheet in the coming months, Long noted.
The FOMC last raised the federal funds target rate to a range of 1% to 1.25% in June. The FOMC will meet again Oct.31-Nov. 1.