Key Takeaways From the September Fed Meeting

By Harriet Torry Features Dow Jones Newswires

Federal Reserve officials didn't raise short-term interest rates Wednesday, but a December increase remains on the table. Meanwhile, the central bank said it would initiate in October its long-telegraphed plan to shrink its securities holdings. Here are key takeaways from the Fed's two-day policy meeting:

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Looking to December

The Fed's summary of economic projections suggests officials are still on track to raise short-term interest rates once more this year, most likely at the Dec. 12-13 meeting when Chairwoman Janet Yellen will hold her next press conference. The Fed meets again Oct. 31-Nov. 1, but no press conference is scheduled then. Fed officials expect to raise rates three more times next year, a forecast unchanged from when they last submitted economic projections in June. Officials lowered their median forecast for the path of rates in 2019: They now expect two rate increases that year, down from three. Officials expect rates to rise once in 2020.

Trending Lower for Longer

Fed officials brought down their expectation for where they see interest rates settling in the longer run, to 2.75% from an earlier forecast of 3%. The drift downward reflects a lowering in officials' view of the so-called neutral rate, an underlying interest rate that is consistent with the economy operating at its full potential and expanding without overheating. Ms. Yellen told reporters that "because the neutral rate currently appears to be quite low by historical standards, the federal-funds rate would not have to rise much further to get to a neutral policy stance."

Will She Stay or Will She Go?

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Ms. Yellen is keeping her cards close to her chest regarding what she think about her future as her term as Fed chairwoman ends Feb. 3, 2018. She reiterated Wednesday that she intends to serve out her current term, but said, "I'm really not going to comment on my intentions beyond that." She told reporters that she hasn't had a meeting with President Donald Trump since the early days of his presidency. The two have met just once, for about 15 minutes, in the Oval Office in February. Mr. Trump has said he is considering renominating Ms. Yellen, but that he is considering others for the post as well.

Roll On the Rolloff

The Fed in October will initiate its long-telegraphed plan to shrink the portfolio of bonds acquired after the 2008 crisis. That means the Fed will end its practice of fully reinvesting the principal payments of maturing bonds into new bonds and instead allow $10 billion in holdings to roll off without reinvestment every month. Those amounts will increase by $10 billion each quarter to a maximum of $50 billion from October next year. "Our balance sheet is not intended to be an active tool for monetary policy in normal times," Ms. Yellen emphasized Wednesday, adding that "we therefore do not plan on making adjustments to our balance-sheet normalization program."

Sticking to Its Guns

With the rolloff of its holdings ready to start, Ms. Yellen said there is now "a somewhat high bar to resume reinvestments," and only "a material deterioration in the economic outlook" would prompt the Fed to consider such a move. "It will be up to future policy makers to decide in the event of a severe downturn whether they think it's appropriate to again resort to adding assets to a balance sheet," she said.

Write to Harriet Torry at harriet.torry@wsj.com

(END) Dow Jones Newswires

September 20, 2017 18:55 ET (22:55 GMT)