Fed keeps interest rate unchanged, dollar bounces
Balance sheet tapering could begin “relatively soon”
The Federal Reserve, as expected, said it will maintain its target interest rate between 1% and 1.25% on Wednesday, and shed some light on plans for balance sheet reduction. The Dollar index was down on the news, but bounced back, up modestly Thursday morning.
Fed comments said that the tapering of balance sheet reinvestments would begin “relatively soon,” as opposed to earlier language indicating it would happen “this year,” an indication that policy makers could be leaning toward beginning as early as September. The ambiguity also leaves plenty of room for extending the timeline.
The expectation of a start to balance sheet reduction by as soon as this fall also lowered expectations for any rate hikes this year, as investors think it unlikely they would announce both at the same meeting.