The latest FOMC meeting minutes revealed that the Fed intends to gradually phase out the reinvestment of maturing securities in its portfolio. The upshot is that the balance sheet will shrink more slowly than we previously suspected. That means that the risk of an adverse market shock should be smaller and also that there is less need for a precautionary ‘pause’ in the normalisation of interest rates, which supports our above-consensus forecast that there will be an additional three rate hikes this year.
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