The Committee clearly communicated its balance sheet intentions by saying that “for the time being” it is maintaining its reinvestment policy, but that it expects to start to implement its balance sheet policy “relatively soon”. Short of saying, “in September”, it could hardly have been more explicit. Perhaps the forthright nature of this communication was to overcome worries that low inflation would get in the way of normalisation, which is scheduled to be announced when the government may be running into tensions on the budget, appropriation bills and the debt ceiling. The message is that normalisation will go ahead unless there is a really big shock. This is consistent with the indications last time that the Fed intends to “set it and forget it” when it comes to balance sheet reduction, unless there is a sudden and dramatic downshift in economic prospects. Another reason for being so explicit may have been to ensure any market reaction comes prior to the September meeting, not after it.
On the economic assessment, there were two fairly significant changes. First, on activity, last month’s statement that household spending had picked up was replaced with a much damper statement that household spending had continued to expand, which looks like an acknowledgement of recently weaker retail sales and mixed data on consumer confidence.