The Federal Reserve on Wednesday left rates unchanged and lowered its economic forecasts. Moving from a 2.3% GDP growth estimate to a 2.1%, as well as upping unemployment numbers from 3.5% to the still low 3.7%. It also signaled it was done hiking rates for the year.
“Growth is slowing somewhat more than expected,” Fed Chair Jerome H. Powell said at a news conference. “While the U.S. economy showed little evidence of a slowdown through the end of 2018, the limited data we have so far this year have been somewhat more mixed.”
Most importantly, the Fed also announced it would stop reducing its balance by September.
According to Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income: "The Committee also re-iterated its intention to run a larger balance sheet going forward than previously assumed, which we would agree with. That approach is more sensitive to the banking and broader financial system, which arguably has become a much larger part of the economy than ever before, but this is not necessarily a dangerous dynamic at all. It just requires regulation and moderate policy adjustment over long periods of time. Reducing mortgage holdings as part of the balance sheet adjustment and running a shorter weighted-average maturity of its Treasury holdings allows the Fed to run a larger balance sheet, but with less duration and a less “credit-heavy” character over time."