Current situation and forecast of American economy
On the same day, the Federal Reserve issued a statement after the regular monetary policy meeting, saying that information since May showed that the US job market continued to be strong, the US economy grew moderately, household consumption in the United States rebounded in recent months, and investment in fixed assets of enterprises continued to expand. However, the inflation rate in the United States has recently declined, which is lower than the Fed's target of 2%.
The quarterly economic forecast released by the Federal Reserve on the same day shows that the US economy is expected to grow by 2.2% this year, which is higher than the forecast of 2. 1% in March. By the end of this year, the unemployment rate in the United States is expected to be 4.3%, lower than the 4.5% predicted in March; By the end of this year, the US inflation rate is expected to be 1.6%, which is lower than the 1.9% forecast in March. The Fed predicts that the median federal funds rate will rise to 1.4% by the end of this year, which is consistent with the forecast in March. This means that after this rate hike, the Fed may raise interest rates again this year.
According to the Fed, if the US economic growth is generally in line with the Fed's expectations, the Fed is expected to start the normalization of its balance sheet this year, and gradually reduce the reinvestment in the principal of matured securities held by the Fed, so as to shrink the balance sheet ("shrinking the balance sheet"). At present, the Federal Reserve has been reinvesting the principal of matured securities to keep its balance sheet unchanged.
Federal reserve plan
According to the details of the plan to reduce the balance sheet announced by the Federal Reserve on the same day, the Federal Reserve plans to initially set the monthly limit for reinvesting the principal of US Treasury bonds due at 6 billion US dollars, and then raise this limit by 6 billion US dollars every three months until it finally rises to 30 billion US dollars. At the same time, the Federal Reserve plans to initially set the monthly maximum limit of not reinvesting the principal of matured institutional debt and mortgage-backed securities at $4 billion, and then increase this limit by $4 billion every three months until it finally rises to $20 billion.
Since only the principal of the expired securities exceeding the upper limit can be reinvested, with the gradual increase of the upper limit, the size of the securities reinvested by the Fed every month will gradually decrease, and the balance sheet of the Fed will gradually shrink. At present, the size of the Fed's balance sheet is as high as about 4.5 trillion US dollars, including about 2.5 trillion US Treasury bonds and about 0/0.8 trillion US dollars of mortgage-backed securities.
Federal Reserve Chairman Yellen said at the press conference that the details of the "shrinking table" plan announced by the Federal Reserve on the same day were to prepare the market in advance. When the Fed really started to "shrink the table", the market would not be surprised. However, she did not disclose the specific time when the Fed began to "shrink the table".
On February 20 15, the Federal Reserve began to raise interest rates for the first time since the 2008 financial crisis, and began the slow process of normalization of monetary policy. Since then, the Federal Reserve raised interest rates again in February 20 16 and March this year. In the future, how the Fed "shrinks its table" and what impact it will have on the US economy and the global economy has been widely concerned by the market.