Fed holds rates steady, expects portfolio cuts 'relatively soon'

The Federal Reserve kept interest rates unchanged on July 26 and said it expected to start winding down its massive holdings of bonds "relatively soon" in a sign of confidence in the U.S. economy.

The Fed kept its benchmark lending rate in a target range of 1.00 percent to 1.25 percent, as expected, and said it was on track to continue the slow path of monetary tightening that has lifted rates by a percentage point since 2015.
   
In a statement following a two-day policy meeting, the U.S. central bank's rate-setting committee indicated the economy was growing moderately and job gains had been solid.
   
It also noted that both overall inflation and a measure of underlying price gains had declined - trends which have worried some policymakers - but that it expected the economy to continue strengthening.
   
"The committee expects to begin implementing its balance sheet normalization program relatively soon," the Fed said, adding that it would follow a plan outlined in June to trim its holdings of U.S. Treasury bonds and mortgage-backed securities.
   
U.S. stock prices rose following the release of the policy statement while yields on U.S. government debt fell. The dollar  dropped against a basket of currencies.
   
After pushing rates nearly to zero to fight the 2007-2009 financial crisis and recession, the Fed pumped over $3 trillion into the economy in a bond-buying spree to further reduce rates. Its balance sheet has grown to $4.5 trillion.
   
The statement cemented expectations the Fed will announce at its next policy meeting in September the start of its balance sheet reduction plan, marking the end of a controversial tool that drew criticism from Republican lawmakers in Congress.
  
"The...