Fed weighing when to start selling off trillions in bonds

Mike Powell  Getty Images

Mike Powell Getty Images

The Federal Open Market Committee, the monetary policy arm of the USA central bank, raised interest rates by 25 basis points at its June 13-14 meeting, setting the target range at 1% to 1.25%.

The Fed's holdings have surged five-fold since 2008, ballooning in size as the Fed bought Treasury and mortgage bonds.

The Fed voted in June to raise short-term rates by a quarter point to a range of 1 to 1.25 percent, the third quarter in a row the bank has lifted rates.

The main theme is that officials are divided on inflation, rates and when to trim the balance sheet. But some participants said they were "less comfortable" with the pace of tightening.

While he was the only member of the Federal Open Market Committee to dissent, the minutes noted that "a few" Fed officials who supported the rate increase cautioned that the weakness of inflation might require the Fed to raise rates more slowly going forward.

In fact, McDonald thinks concerns over inflation may change the Fed's path of interest-rate hikes. Job gains had moderated but had been solid, on average, since the beginning of the year, and the unemployment rate had declined. Some Fed officials suggested at the June meeting that this reflects both the possibility of slower economic growth and the influence of the Fed's own bond holdings.

United States soldier killed, two wounded in Afghanistan's Helmand province
The United States is considering sending thousands of additional USA troops to Afghanistan, after Gen. Kirkpatrick's death brings the total number of US casualties in Afghanistan for this year to seven.

Yet in comments to CNBC last week, St. Louis Fed President James Bullard argued that Fed should delay further rate hikes until it sees what kind of policies Congress and the Trump administration propose.

Some Fed officials are anxious that investors are not responding to the recent rate increases.

Inflation on a 12-month basis was expected to remain somewhat below 2 percent in the near term, but nearly all members expected it to stabilize around 2 percent over the medium term. This has occurred as the stock market has also increased in value.

The Fed has raised rates three times in the past six months, but that hasn't necessarily led to higher borrowing costs this year. Members also agreed that they would carefully monitor actual and expected developments in inflation in relation to the Committee's symmetric inflation goal.They expected that economic conditions would evolve in a manner that would warrant gradual increases in the federal funds rate, and they agreed that the federal funds rate was likely to remain, for some time, below levels that are expected to prevail in the longer run.

The amount of proceeds would start at $10 billion a month and increase until it reached $50 billion a month.

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