Fed Reserve expected to leave rates unchanged

WASHINGTON: The Federal Reserve is expected to hold interest rates unchanged and possibly hint that it will start winding down its massive holdings of bonds as soon as September in what would be a vote of confidence in the US economy.

The US central bank will issue its latest rates decision following the end of a two-day policy meeting at 2 pm EDT (1800 GMT).

Economists expect the Fed’s benchmark lending rate to remain in a target range of 1.00 per cent to 1.25 per cent.

That would mark another pause in the monetary tightening campaign that the Fed began in December 2015.

The central bank has raised rates twice this year, including at its last policy meeting in June.

Wall Street analysts see little chance the Fed will announce the start of the wind down of its US$4.5 trillion balance sheet.

However, the Fed’s policy statement may provide more visibility on when that might occur.

Citibank economists said in a note to clients that the Fed’s ratesetting committee was more likely to say that the trimming would start soon.

“(That would) signal that the committee plans to announce balance sheet reduction in September,” they said in the note.

Reducing the balance sheet will unwind one of the Fed’s most controversial tools used to fight the 2007-2009 financial crisis and its aftermath.

After pushing rates nearly to zero in a bid to boost investment and hiring, the Fed pumped over US$3 trillion into the economy through purchases of US Treasury securities and governmentbacked mortgage debt to further reduce rates.

That programme drew criticism from Republican lawmakers in Congress.