While the US Federal Reserve left the target range for interest rates unchanged at 5.25% to 5.5% citing a stubborn inflation in the world's largest economy, Chairman Jerome Powell also decided to slow down the pace at which it shrinks its balance sheet; from $60 billion a month to $25 billion, starting June 2024.
The way the Fed shrinks the balance sheet is by allowing bonds to mature and redeeming them when they are due. This brings down the size of its bond portfolio as well as its reserves.
“..they (US Fed) are trying to send a message here that they are not going to be too hawkish,” David Kelly, chief global strategist with JPMorgan Asset Management told CNBC.
“It gives some more confidence they won’t hike again but they will eventually cut rates this year,” he added.
US markets edged up after the Fed's interest rate decision and commentary.
The S&P 500 jumped 0.8%, while the Nasdaq Composite and the Dow Jones gained more a percent each at about 2:50 pm New York time.
The yield on the benchmark 10-year US bonds shrank from 4.695% to 4.614% as Chairman Jerome Powell explained the rationale for the Fed's latest policy stance.
Why the US Federal Reserve left interest rates unchanged?
“In recent months, there has been a lack of further progress toward the committee’s 2% inflation objective,” the American central bank said in a statement after a two-day policy review in Washington D.C.
The Fed's target range for benchmark interest rates has been constant at the current level since July last year.
The process is called quantitative tightening and it's a way of reducing liquidity in the economy.
The way the Fed shrinks the balance sheet is by allowing bonds to mature and redeeming them when they are due. This brings down the size of its bond portfolio as well as its reserves.
“..they (US Fed) are trying to send a message here that they are not going to be too hawkish,” David Kelly, chief global strategist with JPMorgan Asset Management told CNBC.
“It gives some more confidence they won’t hike again but they will eventually cut rates this year,” he added.
US markets edged up after the Fed's interest rate decision and commentary.
The S&P 500 jumped 0.8%, while the Nasdaq Composite and the Dow Jones gained more a percent each at about 2:50 pm New York time.
The yield on the benchmark 10-year US bonds shrank from 4.695% to 4.614% as Chairman Jerome Powell explained the rationale for the Fed's latest policy stance.
Why the US Federal Reserve left interest rates unchanged?
“In recent months, there has been a lack of further progress toward the committee’s 2% inflation objective,” the American central bank said in a statement after a two-day policy review in Washington D.C.
The Fed's target range for benchmark interest rates has been constant at the current level since July last year.
The process is called quantitative tightening and it's a way of reducing liquidity in the economy.
First Published: May 2, 2024 12:10 AM IST
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