NEW YORK (Reuters) - The Federal Reserve on Wednesday signaled it is likely to raise U.S. interest rates in March and reaffirmed plans to end its bond purchases that month before launching a significant reduction in its asset holdings.
The combined moves will complete a pivot away from the loose monetary policy that has defined the pandemic era and toward a more urgent fight against inflation.
In a press conference, Fed Chair Jerome Powell said officials will discuss plans for reducing the central bank’s nearly $9 trillion balance sheet at their next two meetings, adding he expects there to be a “substantial” amount of shrinkage in the Fed’s bond holdings, which would reverse pandemic-era “quantitative easing that stabilized financial markets and the U.S. economy. .
Wall Street reversed sharp gains during Powell’s comments.
JUAN PEREZ, SENIOR FX TRADER, MONEX USA, WASHINGTON DC
“This decision by the Fed sounds like they are not convinced the time to hike will be in March necessarily as they are leaving open room for consideration of policy stance to adjust as needed.”
“Keeping the balance sheet the same until hikes begin means that they are indeed not taking all easing measures away quite yet. We thought there was chance of this to happen and it could bode poorly for the dollar in the short-term.”