The Federal Open Market Committee (FOMC) of the United States Federal Reserve has decided to keep interest rates unchanged and announced plans to slow down the reduction of its balance sheet.
During its latest meeting, the FOMC voted to maintain the target range for the federal funds rate at 2.25-2.5%. This decision was widely anticipated by analysts and market participants.
In addition to holding rates steady, the FOMC also revealed that it will slow the pace of reducing its balance sheet. The Fed had been gradually shrinking its balance sheet by allowing a set amount of Treasury securities and mortgage-backed securities to mature each month without reinvesting the proceeds. This process, known as quantitative tightening, was implemented as part of the Fed's efforts to normalize its balance sheet following the financial crisis.
The decision to slow down the balance sheet drawdown indicates a more cautious approach by the Fed amid concerns about slowing global growth, trade tensions, and muted inflation pressures. By reducing the pace of balance sheet reduction, the Fed aims to provide additional support to the economy and financial markets.
Federal Reserve Chairman Jerome Powell emphasized that the central bank remains data-dependent and will continue to monitor economic developments closely. Powell noted that the Fed is committed to sustaining the economic expansion while also achieving its dual mandate of maximum employment and stable prices.
Market reactions to the FOMC's announcement were mixed, with stock markets showing a modest increase following the news. Bond yields also edged higher, reflecting expectations of a more accommodative stance by the Fed in the near term.
Overall, the FOMC's decision to keep rates unchanged and slow the balance sheet drawdown underscores the central bank's commitment to supporting economic growth and maintaining financial stability in the face of evolving global uncertainties.
