27 May, 2017
However, the main factor in markets overnight was the minutes of the Fed's May 2-3 meeting.
They showed policymakers agreed they should hold off on raising rates until it was clear a recent slowdown in the USA economy was temporary, though most said a hike was coming soon.
Minutes from the Fed's last policy meeting showed policymakers agreed they should hold off on raising interest rates until it was clear a recent USA economic slowdown was temporary, though most said a hike was coming soon.
Caps will be set at low levels initially then gradually raised every three months, according to the meeting summary. The goal would be to minimize the effect of the bond sales on loan rates paid by consumers and businesses.
Policy makers agreed that they should provide additional details of the plan "soon" and almost all said it would be appropriate to start the process this year, provided their expected path for rate hikes stays on track.
Elsewhere, world stock markets recovered from initial losses after Moody's Investors Service issued its first credit downgrade of China in 30 years, dropping China's sovereign debt to A1 from Aa3. The officials say they want to raise rates a little more before they start selling that debt. Nothing in the material the Fed released Wednesday suggested otherwise. Labor Department data released two days after the meeting showed the jobless rate in April fell to 4.4 percent, the lowest reading since 2007 and beneath most economists' estimates of the lowest sustainable level.
WALL STREET GAINS: U.S. stocks rose for the fifth consecutive day Wednesday, and the Standard & Poor's 500 index gained 0.2 percent to close at a record high 2,404.39.
The minutes did not spell out what officials meant by "soon".
"Most participants judged that if economic information came in about in line with their expectations, it would soon be appropriate for the committee to take another step in removing some policy accommodation", the minutes noted.
During the economic slump and financial crisis that centered on the housing market but quickly affected most of the global banking system, the Fed bought trillions of mortgage and Treasury bonds in an effort to keep long-term interest rates low. "Nearly all policymakers indicated that as long as the economy and the path of the federal funds rate evolved as now expected, it likely would be appropriate to begin reducing the Federal Reserve's securities holdings this year".
Paul Ashworth, chief US economist at Capital Economics, estimated that about $30 billion in mortgage-backed securities and $33 billion in Treasurys will mature each month in 2018.
Only the amounts of securities repayments that exceeded the caps would be reinvested each month, the minutes said.
"As the caps increased, reinvestments would decline, and the monthly reductions in the Federal Reserve's securities holdings would become larger".
Policy makers have also said they would like to start shrinking their bloated balance sheet by year-end, a move that may lift longer-term borrowing costs and dampen growth.
The Federal Reserve seems bent on proving Galbraith right, this time when it comes to guidance about what it intends to do with its $4.5 trillion balance sheet, which expanded sharply in response to the Great Recession of 2007-2009.