By Isaac Cohen*
In those terms, last week, Chair Janet Yellen of the central bank described the US economic performance, with growth at around 2 percent, unemployment at 4.4 percent in August and still low inflation, at less than the target of 2 percent, before the onslaught of three hurricanes in the Gulf of Mexico region.
This is the background for the decisions by the central bank authorities announced last week, at the end of the Open Market Committee meeting. There will be another interest rate increase by the end of the year and in October will start the gradual reduction of its $4.2 trillion portfolio, of which $2.4 trllion in Treasury securities, or 17 percent of the market, and $1.7 trillion in mortgage bonds, or 29 percent of the market.
As announced, the reduction in the portfolio will take place gradually. The hope is that it will be as “watching paint dry” and the markets reacted almost with indifference. Starting October, the central bank will stop reinvesting $10 billion per month, $6 billion in Treasuries and $4 billion in mortgage backed securities. This amount will increase quarterly, until it reaches $30 billion in Treasuries and $20 billion in mortgages per month.
It is premature to anticipate where this process will stop. What is known is that the portfolio will not return to less than $1 trillion, where it was before the Great Recession. According to the New York Federal Reserve Bank President William Dudley, by the end of the decade, the portfolio could amount to between $2.4 and $3.5 trillion.
*International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio, UNIVISION, TELEMUNDO and other media. Former Director, UNECLAC Washington.
