The Federal Reserve said the U.S. economy is strong enough for the central bank to begin reducing its US$4.5 trillion balance sheet in October, gradually unwinding a massive stimulus program started after the economy entered a severe recession nearly a decade ago.
The Fed will scale back its holdings by US$10 billion in October and raise that amount gradually in the months to come. After the 2008 financial crisis and ensuing recession, the Fed took the unprecedented step of beefing up its holdings of government bonds and mortgage-related securities from US$900b to US$4.5 trillion in an effort to turn the economy around.
The U.S. economy keeps getting better, according to the central bank. Consumers continue to spend, and business investment is "picking up," the Fed said. It now projects even faster growth this year of 2.4 per cent, an increase from it forecast of 2.1 per cent earlier this year.
"Hurricanes Harvey, Irma and Maria have devastated many communities . . . but past experience suggests that the storms are unlikely to materially alter the course of the national economy," the Fed said in a statement Wednesday.
The Fed did not change interest rates, which remain in a range of 1 to 1.25 per cent, but the central bank says it still thinks growth will be strong enough to merit another rate hike by the end of the year and three more in 2018 to bring rates above 2 per cent.
