A top Federal Reserve official is sending another signal that the central bank will soon begin to downsize its $4.5 trillion portfolio.
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New York Federal Reserve President William Dudley suggested that the Fed will likely announce next month that it will begin paring its bond portfolio — a step that could lead to slightly higher rates on mortgages and other loans.
Dudley says he thinks the Fed has adequately prepared investors for a reduction in the portfolio, which swelled after the 2008 financial crisis as the Fed bought bonds to reduce long-term rates. Dudley also says he would favor a third increase this year in the Fed's benchmark rate if the economy remains strong. Many investors expect a rate hike in December.
Evans said last week a rate hike could be delayed to 2018 if the Fed needs more time to evaluate whether inflation is on track to meet a 2% target.
Economists mostly expect the Fed to cut its balance sheet in September, citing a stronger U.S. economy and a recent uptick in hiring. The central bank will start by shedding up to $6 billion in government bonds and $4 billion in mortgage-backed securities each month. It plans on gradually raising the cap every quarter.
The Associated Press contributed to this report.