June's FOMC meeting concluded today and the meeting announcement revealed an interest rate hike of .25% to bring the Federal Funds target to between 1 and 1.25%. Additionally, we also learned that the FOMC anticipates one more rate in 2017, 3 more in 2018, and the beginning of a balance sheet reduction effort starting this year. Of course, the balance sheet reduction is actually just a taper in the amount of reinvestment. Since they are simply slowing down how much in assets they are buying every month, the balance sheet will still be increasing.
There are still concerns at the FOMC (and in monetary officialdom in general) that the devaluation of our purchasing power (colloquially known as "inflation") is not occurring rapidly enough. From their own statistics, which exclude things most important to consumers such as food and energy, price inflation dipped a bit to 1.7%. This, of course, is an utter outrage to the experts.
We also got more specific detail about the balance sheet plan, which as we have said all year is going to be the primary narrative of the second half of 2017 in place of interest rate hike talks. Bloomberg reports:
In a separate statement on Wednesday, the Fed spelled out the details of its plan to allow the balance sheet to shrink by gradually rolling off a fixed amount of assets on a monthly basis. The initial cap will be set at $10 billion a month: $6 billion from Treasuries and $4 billion from mortgage-backed securities.
The caps will increase every three months by $6 billion for Treasuries and $4 billion for MBS until they reach $30 billion and $20 billion, respectively.
Officials didn’t reveal the exact timing of when the process will begin this year, as well as specifically how large the portfolio might be when finished.
On the interest rate decision it was Minneapolis Fed President Neel Kashkari who once again dissented, preferring no change. He is one of the more dovish members of the Fed, preferring to see the core inflation rate (according to Fed-preferred statistics) solidly above 2% before additional rate hikes.
The next FOMC meeting is at the end of July, but no rate hikes are expected again until September.
