NEW YORK / San Francisco (Reuters) – Federal Reserve Chairman Jerome Powell has a problem: how to explain that the Fed may soon begin to reduce its current asset landing, without looking like He is trying to face the impending recession or face US President Donald Trump. The first political meeting of the Fed of the Year. But three things – an unexpected shortage of reserves, deep in the Wall Street plumbing network, obvious public pressure from investors and the White House, and the Fed's own decision to rethink its interest rates ̵
"You can not stop the cycle of tourism without communicating on the balance sheet," said Thomas Koster, senior economist at Pictet Wealth Management in Geneva, Switzerland.
A greater balance can lead to a relaxation in market borrowing costs and the currency value of the dollar. , alleviating tensions in emerging markets. This may also affect the Fed's demand for bond purchases in the context of a US downturn.
For more than a year, the Federal Reserve has systematically pruned its balance from a few trillions of dollars – from nearly $ 4.5 trillion to about $ 4.1 trillion. Instead, he has kept the eyes of the world trained for a series of interest rate hikes that, according to carefully sent messages from politicians in recent weeks, may have ended.
At the end of last year prominent investors were trying to blame the Fed's balance sheet runoff for market volatility. To emphasize what they saw as the damaging deterrent effects of Fed's reversal of the incentives to buy bonds, the program, known as the quantitative easing that took place during the financial crisis to accelerate the economy, called the second quantitative tightening.
In December, Trump confirmed this issue by quoting that the central bank should not "make another mistake" and "stop with the 50 B" – a reference to a maximum of $ 50 billion in bonds with which the Federal reserve reduces its wallet. Each month, according to a plan described and begun in 2017
A day after Tweets, when Powell said the balloon remains an "automatic pilot," the stock index of Standard & Poor's 500 gave its worst 60 Two weeks later, when Powell stressed that the plan was actually flexible, the index achieved its best 60 minutes for at least one year. his plan for 2017 is divorced with monetary politics The monetary policy of monetary policy, markets see a stronger relationship. If the Federal Reserve has to stick to its weapons to keep its balance as a means of responding to economic ups and downs, Powell must keep this divorce in the books. to stop, "said Chuck Sef, Chief Investment Officer at iSectors LLC, Appleton, Wisconsin. "They want to reduce it as low as they can without disturbing the economy."
THE BANKING ROAD
The central bank is really moving to the point where it needs to adjust its balance sheet plan, not because of the state of the domestic economy, which seems to be strong, but because of the water supply in the short-term markets.
As the portfolio has fallen, banks have reduced the reserves they hold at the Fed by even more, putting the Fed's ability to control the short-term interest rate through which it manages monetary policy.
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For its part, the Federal Reserve seeks to reduce its portfolio to an unspecified level of demand for reserves corresponds to the supply – albeit not as much as the $ 900 billion it has retained before the recession of 2007-2009, to start buying.
"It will be considerably smaller than it is now … Where it was before," Powell said on January 10, putting every decision as a technical, not a referendum on overall politics
balance sheets can cause Powell to draw a clearer road map for the assets held at 14:30 (19:30 GMT) Wednesday, a press conference
"They have to start with this," said Darle Duffy, a business lecturer School of Stanford University. "They are not introduced now, but the longer they wait, the more they will be give the boxes in them. "
After gradually raising interest rates last year, the Federal Reserve takes the approach of waiting and further tightening
But even if interest rates remain stable this year, continued weakening of assets, $ 380 billion in October 2017 will continue to tighten financial conditions by making financing more expensive for banks.] In 2017, the Federal Reserve predicted that it would cut its portfolio to around 2022 when it held assets from $ 2.3 trillion to $ 2.9 trillion Olara. "of securities than planned, or a slowing down of the leak as the final is approaching.
In the middle of 2018, Deutsch Bank Securities economists were among those who predicted that the Fed would be forced to stop the process of bringing about $ 3.7 trillion in assets by the beginning of 2020.
The minutes, written in a note, "shifted the balance of risks further," and convinced them that Powell would switch to a wallet in the the beginning of the third quarter of 2019
In a possible review of Powell's message, the president of New J oror John Williams, a permanent voter in the Fed's policy committee, said on Jan. 18: "If circumstances change, he will reassess his choice of monetary policy, including a way to normalize the balance. The dependence on data refers to everything we do. "
(Reporting by Jonathan Spicer and Ann Saphir, Additional Report by Trevor Hunik, Editing by Leslie Adler)