Why Fed May Take a Summer Breather on Rate Hikes

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Why Fed May Take a Summer Breather on Rate Hikes
The target range of the Federal Funds Rate is currently 0.75% to 1.00%, raised in March from the previous
target range of 0.50% to 0.75% set in December 2016, per data from the Federal Reserve Bank of New York.
The Federal Reserve Board instead will focus on interest rate normalization this year, likely boosting rates only twice
and waiting until 2018 to start trimming its $4 trillion balance sheet, BofA says.
BofA expects that the Fed will announce changes to its reinvestment policy in September, release
a formal balance sheet reduction plan in December and make final changes public in March 2018.
BofA anticipates that economic data will not be strong enough in June to warrant a rate hike at
that time, but that increases will be approved at the Fed’s September and December meetings in 2017.
Additionally, BofA says that the announcement of the balance sheet reduction itself will have
an impact equal to a 25 basis point rate hike, reinforcing the Fed’s cautious approach.
BofA believes that rates will be held steady in March 2018, but increases will be approved in June, September and December.
BofA quotes Fed Vice Chairman Stanley Fischer as saying, “As we continue to discuss
and eventually implement policies to reduce our balance sheet, we will have to continue to monitor market developments.”


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