Fed: To Discuss Balance sheet announcement at FOMC Meeting In May

The release of the Federal Reserve’s latest FOMC meeting minutes on Wednesday will be a key event this week. At that meeting, the central bank raised interest rates as expected. Wells Fargo pointed out the importance of the additional information that will contain the minutes regarding the balance sheet runoff.

The Federal Open Market Committee (FOMC) elected to raise rates by 25 bps at its March 15-16 meeting. At the conclusion of the meeting, the committee released its quarterly Summary of Economic Projections (SEP), in which all current members submit individual forecasts for key economic indicators and the path of policy. For example, the median forecast for 2022 PCE inflation jumped to 4.3% (on a Q4-over-Q4 basis) from 2.6% in December. Moreover, the median forecaster called for 175 bps of rate hikes in 2022, up from 75 bps in December. All told, the SEP indicated that the FOMC has broadly adopted a hawkish stance on policy.

The statement from this past meeting said “the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.” Moreover, Chair Powell signaled that the meeting minutes, due for release on Wednesday, will contain additional information on the balance sheet runoff. While we previously expected the FOMC to decide on balance sheet reduction in June, the statement indicates that an announcement could very much be in play at the next meeting on May 3-4, depending on developments in coming weeks.