In addition to the FOMC meeting statement, the Committee decided to issue a “Statement Regarding Monetary Policy Implementation and Balance Sheet Normalization”. This was probably deemed necessary given the number of questions received by Fed officials regarding the future of its holdings of Treasurys and Agency MBS against a backdrop of volatility in the equity market and concerns about a possible recession that intensified during the partial federal government shutdown.
The statement does not change of the present program of normalization, nor does it alter that short-term rates are the primary tool of monetary policy while the balance sheet is one of the other tools in the Fed’s tool box. What it does indicate is that the Fed is prepared to change the program if circumstances “were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.” Given widespread concerns that the FOMC has less room to adjust rates than before the financial crisis, the possibility that the balance sheet will again be brought into play are greater. However, there is nothing new in this and policymakers have spoken about the possibility often.
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