The US Federal Reserve (US Fed) forged ahead with a 25 bps interest rate hike and additional plans to tighten monetary policy despite growing concerns over weak inflation. Policymakers agreed to raise their benchmark lending rate for the third time in six months to 1.25% from 1%, maintained their outlook for one more rate hike in 2017, and set out some details for how they intend to shrink their $4.5 trillion balance sheet this year. Near-term risks to the economic outlook appear roughly balanced, but the committee is monitoring inflation developments closely. Policymakers also issued forecasts showing another three quarter-point rate hike in 2018, similar to the previous projections in March. The Fed’s actions and words struck a careful balance between showing resolve to continue tightening in response to falling unemployment while acknowledging the persistence of unexpectedly low inflation this year. the US Fed spelled out the details of its plan to allow the balance sheet to shrink by gradually rolling off a fixed amount of assets on a monthly basis. The initial cap will be set at $10 billion a month: $6 billion from Treasuries and $4 billion from mortgage-backed securities. The caps will increase every three months by $6 billion for Treasuries and $4 billion for MBS until they reach $30 billion and $20 billion, respectively. Officials didn’t reveal the exact timing of when the process will begin this year, as well as specifically how large the portfolio might be when finished. The FOMC (Federal Open Market Committee) next meets in six weeks, on 25-26 July.

(Live Mint)