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October 21 2017, 07:11 | Irvin Gilbert
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"It's very clear that the Fed wants to remain vague", said Lindsey Piegza, chief economist at the financial firm Stifel Fixed Income.
Inflation indicators will play an important role over the next few months, especially as recent data has been softer than expected.
The Fed's holdings have surged five-fold since 2008, ballooning in size as the Fed bought Treasury and mortgage bonds. The labor market is strengthening, while business investment and consumer spending appear to be recovering from recent lows.
The main theme is that officials are divided on inflation, rates and when to trim the balance sheet.
Fed chair Janet Yellen has emphasized that the bank's actions will hinge on the performance of the economy.
William Dudley, the president of the Federal Reserve Bank of NY, has suggested the Fed might need to raise rates more quickly in order to achieve its goals.
The minutes also indicated that members generally supported the Fed's current strategy for slowly implementing rate hikes. The pace of price increases has slowed in recent months, forcing the Fed to back away from its earlier predictions that this would be the year that inflation approaches the Fed's desired 2 percent annual pace.
Other officials believed that making a decision later in the year would give the Fed more time to evaluate the outlook for economic activity and inflation. Investors saw a almost 20 percent chance of another rate hike in September, and a 60 percent chance of another rate hike or two by December. But at some point, increases to the Fed's benchmark interest rate and reductions to its balance sheet will begin to affect bond markets and raise the price of loans for everyday Americans, he said.
Longer-term interest rates have declined this year. Fed officials viewed weakness in inflation, as well as slow GDP growth recorded in the first quarter, as "transitory" developments. A few Fed officials noted that stock prices were high relative to traditional methods of valuation. The minutes said some participants see evidence that investors are taking larger risks and a few are concerned about "a buildup of risks to financial stability".
"This program, which would gradually reduce the Federal Reserve's securities holdings by decreasing reinvestment of principal payments from those securities, was described in an addendum to the Committee's Policy Normalization Principles and Plans to be released after this meeting".
The issue of when to begin reducing the Fed's $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities and how it might affect deciding future rate rises also sparked debate.