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While the Federal Reserve voted unanimously to keep rates steady at its last meeting, the central bank is tightening U.S. monetary policy in a different way.
Years ago Fed officials decided to set up the $4 trillion bond portfolio so that the maturity of the bonds declines daily. Chairwoman Janet Yellen said the declining maturation of bonds will have the same impact on yields as two short-term interest rate hikes stretched over 2017, the Wall Street Journal reports. Not including mortgage-backed securities, the average maturity of the Fed’s portfolio dropped to about six years last week, falling from 7.5 years in late 2013.
The Fed indicated it has no plans to change the management of its bond portfolio, meaning as the bonds grow closer to maturity rates will be forced higher — with or without an actual rate hike. [WSJ]
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