The Fed Takes a Summer Vacation
The Federal Open Market Committee (FOMC) met today and decided to keep policy on hold. This decision was largely expected. The statement was nearly identical to that issued in June. The Fed is happy with the pace of economic growth and job creation but is mildly concerned about an inflation rate that continues to be a bit below its target of 2 percent.
In one of the few changes to the statement, the FOMC said that it expects to begin a gradual reduction in the size of its balance sheet "relatively soon." In June, the FOMC had said that reduction in the balance sheet was likely to start "this year." Barring any unexpected economic developments, the FOMC is likely to start reducing its balance sheet after the September meeting. The next interest rate hike will probably wait until December and will depend critically on continued moderate job growth and some signs of inflation returning toward target.