Published: Thu, May 25, 2017
Money | By Armando Alvarado

US bond yields fall, curve flattens after Fed minutes

"Nearly all policymakers expressed a favorable view of this general approach", the minutes said, adding it likely would be appropriate to begin reducing the Fed's holdings this year.

The discussion of winding down the Fed's balance sheet was also framed in the minutes in terms of the wider group of policymakers.

"The real take from the Fed is that a June rate hike still seems to pretty much baked in the cake but I'm going to be looking at guidance as how they expect to start spending down their excess assets", said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Mass.

The support followed the release of the minutes of the Fed's latest monetary policy meeting.

The central bank opted to leave rates unchanged at its meeting on May 2-3, though signaled a willingness to move on rates sooner than later.

"That said, the market is low on incentives after the Fed minutes' release". Labor Department data released two days after the meeting showed the jobless rate in April fell to 4.4 percent, the lowest reading since 2007 and beneath most economists' estimates of the lowest sustainable level.

"Our money is on the unemployment rate as being the key variable driving policy forward", said Chris Rupkey, senior analyst at Bank of Tokyo-Mitsubishi.

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Officials still expected weakness would pass and that it would soon be appropriate to raise rates if their expectations were met.

U.S. Federal Reserve policymakers agreed they should hold off on raising interest rates until they see evidence that a recent economic slowdown was transitory, minutes from their last policy meeting showed on Wednesday. They have projected three rate increases in 2017, including the hike they made in March.

Fed officials say the economy also is expected to see a boost from overseas demand for United States exports, as "the risks stemming from global economic and financial developments" have "receded further", the minutes said. The Fed indicated in March that it still expected to boost rates twice more this year.

US equities traded higher on Wednesday, with the S&P 500 erasing losses from its biggest sell-off of the year. As the caps increased, reinvestments would decline, and the monthly reductions in the Federal Reserve's securities holdings would become larger.

At the May meeting, almost all officials "expressed a favorable view" of a staff-presented general approach to shrinking the balance sheet that would involve gradually increasing run-off caps every three months.

The Fed's $4.5 trillion balance sheet represents a five-fold increase from where it stood in the summer of 2008 before the financial crisis hit, sending the country into a deep recession.

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