Sitting Between Investing???s Doom and Gloom

The Federal Reserve has spoken, and it???s done so today via the Federal Open Market Committee???s (FOMC) decision to leave interest rates unchanged.

And while any change in the benchmark fed funds rates from the current range of 1% and 1.25% wasn???t expected, what was highly anticipated was language in the FOMC statement signaling how and when Fed Chair Janet Yellen and colleagues plan to unwind the balance sheet.

On that front, there was a development, as the Fed changed the language in Paragraph 5 of the FOMC statement to clearly signal that balance sheet reduction will begin ???relatively soon.???

What this basically means is that the Fed will begin unwinding its balance sheet (likely very slowly) beginning with the September FOMC meeting. That also means that we most likely will get one more quarter-point rate hike this year, and that may well come at the December FOMC meeting.

Now, the one potential wildcard in the FOMC statement was the Fed???s outlook on inflation, but that also turned out basically to be as expected. The Fed did acknowledge the recent weakness in inflation, saying inflation measures ???have declined and are running below 2%.??? Yet importantly, the Fed kept its language that the near-term risks to the economic outlook appear to be ???roughly balanced.???

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