What The Fed Minutes Indicate About Path Ahead

WASHINGTON—The Federal Open Market Committee’s minutes from March indicate it hopes to "trim its balance sheet" this year, notes NAFCU Chief Economist and Director of Research Curt Long.
"The FOMC clearly believes it can make real headway in reducing the level of monetary policy accommodation this year," Long said. "The March rate hike lent credibility to its median forecast of three quarter-point rate hikes this year, and the committee now believes that it can start trimming its balance sheet in 2017.
"That will likely involve tapering reinvestment of the Fed's holdings of long-term Treasuries and mortgage-backed securities," Long continued.
Long also noted that most committee members anticipate gradual increases in the federal funds target rate will continue. Most members agree that the economy is operating at or near maximum employment and that risks to the economic outlook remain balanced.
After its two-day March meeting, the FOMC announced it would raise the federal funds target rate a quarter-point to a range of 0.75% to 1%.
The FOMC had last raised the federal funds target rate to a range of 0.5% to 0.75% last December.
The committee’s revised projections are three quarter-point rate hikes in 2017, three in 2018 and three to four in 2019. The FOMC will meet again May 2-3.