The Fed decision was the most anticipated event of the week.
Expectations the central bank would raise the funds rate were again realised, taking the rate to between 1% and 1.25%.
"There were hopes there would be some detailed commentary around unwinding the Fed’s balance sheet. However, this was not the case. The Fed simply said it will start to shrink gradually sometime this year."
The Fed also signalled it anticipated one more rate rise this year, brushing off recent mixed economic data, he said.
The Fed indicated it planned to reduce its $US4.2trillion ($NZ5.8trillion) portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in the wake of the 2007-09 financial crisis. It expected to begin the normalisation of its balance sheet this year, gradually increasing the pace. The plan, which would feature halting reinvestments of ever-larger amounts of maturing securities, did not specify the overall sizes of the reduction.
At a press conference, Fed chairwoman Janet Yellen said: ‘‘What I can tell you is that we anticipate reducing reserve balances and our overall balance sheet levels appreciably below those seen in recent years but larger than before the financial crisis’’.
The initial cap for the reduction of the Fed’s treasuries holdings would be set at $US6billion per month, increasing by $US6billion increments every three months over a 12-month period until it reached $US30billion a month.
The Fed has now raised rates four times as part of a normalisation of monetary policy that began in December 2015. It pushed rates to near zero in response to the financial crisis.
Fed policy makers also released their latest set of quarterly economic forecasts, which showed only temporary concern about inflation and continued confidence about economic growth in the coming years.
US economic growth of 2.2% was expected in 2017, up on the March forecast. Inflation was expected to be 1.7% by year end.
