The Fed Has Started to Ease— Did You Miss It?

Some have been waiting for the Fed to lower interest rates and confirm it will ease monetary policy, which may result in lower home mortgage rates, credit card rates, auto loans, and so forth.

However, the Fed went another route at the close of its two-day meeting on May 1. They took an indirect approach to easing, and if you weren’t following closely, you may have missed it.

Chairman Powell will reduce the cap on maturing Treasury securities, meaning the current rate of $60 billion will now be $25 billion. To some, that indicates that the Fed is committed to lowering short-term interest rates later this year. To others, it suggests the Fed wants to keep the system operating smoothly and take some financial pressure off mid-sized banks. But to almost every economist, it's a signal that the Fed is moving toward easing and away from tightening.1,2

You're correct if you think this sounds like a lot of inside baseball. A slight policy change by the Fed after each meeting doesn’t amount to much. But when our team of professionals examine the Fed’s decisions over the past several meetings, we can start to see emerging patterns.

Fed Chair Powell said the new policy would start in June, so it’s too early to tell how that will influence the financial markets. It’s also too early to say whether the Fed’s pattern will lead to me suggesting portfolio changes for some clients.

At this point, sit tight, but please reach out if you have any questions about the Fed’s inside baseball game. Better yet, let me know how your favorite baseball team is doing this year! That may be a bit more interesting than talking about the Fed.

1. Reuters.com, May 1, 2024. “Fed announces reduction in balance sheet runoff pace.”2. Bankrate.com, May 2, 2024. “The Fed’s latest meeting wasn’t just about interest rates. Here’s why you shouldn’t overlook its balance sheet announcement.”