Fed announces a start to modestly reducing its bond holdings

Associated Press

WASHINGTON

The Federal Reserve will begin shrinking the enormous portfolio of bonds that it amassed after the 2008 financial crisis to try to sustain a frail economy. The move reflects a strengthened economy and could mean higher rates on mortgages and other loans over time.

The Fed announced Wednesday that it will let a small portion of its $4.5 trillion balance sheet mature without being replaced, starting in October with reductions of $10 billion a month and gradually rising over the next year to $50 billion a month.

The central bank left its key short-term rate unchanged but hinted at one more hike this year – most likely in December. The Fed policymakers’ updated economic forecasts show an expectation for three more rate increases in 2018.

The Fed’s policymaking committee approved its action on a 9-0 vote after ending its latest meeting.

Stocks turned lower after the announcement before finishing mixed. Bond yields rose, reflecting expectations of higher rates.

John Silvia, chief economist at Wells Fargo, said some investors appeared surprised that the Fed still expects to raise rates by December.