With estimates for U.S. growth in 2010 raised and diminishing concern about unemployment and inflation, a majority of Federal Reserve policymakers are in no hurry to raise interest rates or sell off the central bank’s $1.2 trillion in mortgage-backed securities (MBS) holdings.
Reducing the size of the Fed’s balance sheet, which grew enormously in response to the nation’s financial crisis, will take place gradually over five years as the central bank sells off its housing-related assets, according to the April 27-28 Federal Open Market Committee (FOMC) meeting minutes released on Wednesday, May 19.
Fed watchers have criticized the central bankers for their relative lack of experience dealing with the impact of asset sales on financial markets. As a result, this month’s FOMC minutes were eagerly awaited.
According to an economic forecast released with the FOMC minutes, the Fed currently predicts that the economy will expand from 3.2% to 3.7% this year, with the 2011 forecast unchanged at 3.4% to 4.5%. Central bankers in January forecast 2010 growth of 2.8% to 3.5%.
At the April FOMC meeting, a majority of Fed board members wanted to delay selling the assets until after the central bank lifts its interest rate target.