Fed keeps US rates flat but expects to cut balance sheet soon

The Federal Reserve kept interest rates unchanged on Wednesday and said it expected to start winding down its massive holdings of bonds “relatively soon” in a sign of confidence in the US economy.

The US central bank kept its benchmark lending rate in a target range of 1.00 per cent to 1.25 per cent and said it was continuing the slow path of monetary tightening that has lifted rates by a percentage point since 2015.

In a statement following a two-day policy meeting, the Fed’s rate-setting committee indicated the economy was growing moderately and job gains had been solid. But it noted that both overall inflation and a measure of underlying price gains had declined and said it would “carefully monitor” price trends.

“The committee expects to begin implementing its balance sheet normalisation programme relatively soon,” the Fed said, adding that it would follow a plan outlined in June.

After pushing rates nearly to zero to fight the 2007-2009 financial crisis and recession, the Fed pumped over US$3 trillion into the economy in a bond-buying spree to further reduce rates. Its balance sheet has grown to US$4.5 trillion.