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Fed's balance sheet, economic outlook under microscope By Reuters

© Reuters. The Federal Reserve Board Building on Constitution Avenue is depicted in Washington

By Howard Schneider

WASHINGTON (Reuters) – The US Federal Reserve on Wednesday is expected to keep interest rates stable, shaving the number of trips projected for the rest of the year, and releasing long-awaited details about a plan to end the monthly reduction of its massive balance.

The US central bank since early this year has signaled a "patient" approach to raising borrowing costs, and an end to a gradual three-year monetary tightening cycle, with 9 interest rate increases, including seven in the 201[ads1]7-2018 period.

Investors are now adding a 75 percent probability that the Fed will not increase its benchmark rate, or federal fund prices, any more this year, according to CME Group's FedWatch tools. The math fund price is currently set at a range of 2.25 per cent to 2.50 per cent.

New quarterly financial and forecast forecasts to be released with the latest Fed policy statement at 2pm. EDT (1800 GMT) will show how close politicians adapt to that view. The Fed's December projection required two trips this year, but it is expected to be cut to a single increase at the end of the Wednesday's Wednesday meeting.

It would take a downward movement of seven policemen to bring Medianet's expected number of trips to zero for the year, a full half percentage point change that only happened once since the Fed began making its "dot plot" of public forecasts in 2012. [19659004] The more intense the focus among investors may be on the balance sheet, and Fed's plans to stop reducing its government bond holdings and mortgage-backed securities each month by as much as $ 50 billion.

Details of this plan are also expected to be released on Wednesday, giving investors a sense of how much longer the countdown will continue, and what is likely to remain in the Fed's portfolio of assets when it stops.

Minutes of the Fed's Political Meeting at the end of January showed that officials wanted to "announce too long a plan to stop reducing … asset holdings later this year," a statement many have interpreted to mean that a playoffs for The balance will be revealed this week.

Fed Mayor Jerome Powell will hold a press conference half an hour after the release of the policy statement.


Fed officials have generally pointed out that the downturn ends rather than later, with perhaps only a few months to go before the central bank hits a level where it is comfortable to stop.

"Assuming the shrinkage process ends in October, the balance will end up in the $ 3.75 billion region," Cornerstone Macro analyst Roberto Perli wrote in a preview of this week's Fed meeting.

It has more than tripled the size of Fed's holdings before three rounds of quantitative easing began, buying billions of dollars from government bonds and panty-based securities in response to the economic crisis of 2007-2009 and renegotiating.

Having accumulated its balance during the crisis and its demand, the Fed began to "normalize" its holdings in October 2017 with a steady reduction of up to $ 50 billion per month.

Having studied the reaction to the financial markets for the reductions, as well as the use of reserves held by financial institutions at the Fed, the central bank concluded with the most effective way of managing interest rates going forward to keep the supply of reserves "abundant" and to pay interest on any surplus held. by the Fed beyond the statutory minimum required, for example, to meet customer recall requirements.

With banks now requiring more reserves for a variety of uses, coupled with growth in the amount of cash in circulation and other items, the Fed feels it is close to an appropriate size for its balance.

The preferred final mixture of assets and how to reach it is still discussed.

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