The Federal Reserve has another option besides rate cuts to battle a slowdown

  • The central bank could end the reduction of its balance sheet ahead of schedule, according to strategists from Ned Davis Research and Goldman Sachs.
  • Earlier this year, the Fed indicated it would end its balance-sheet reduction process by September.
  • Ending the process ahead of schedule would keep monetary conditions looser as more liquidity would remain in the system.

The Federal Reserve signaled on Wednesday it could start cutting interest rates as soon as July. But the Fed also has another option up its sleeve.

The central bank could end the reduction of its balance sheet ahead of schedule, a move that would add further monetary stimulus to the U.S. economy, according to strategists from Ned Davis Research and Goldman Sachs. Earlier this year, the Fed indicated it would end its balance-sheet reduction process by September.

Ending the process ahead of schedule would keep monetary conditions looser as more liquidity would remain in the system. This would also help the central bank fend off an economic slowdown, along with rate cuts, and could lead to even more gains for stocks.

“It would be harder for the Fed to explain why they were cutting rates and letting the balance sheet continue to run-off,” said Joseph Kalish, chief global macro strategist at Ned Davis Research, in a note. “That would be like pressing on the gas and the brakes at the same time.”

 

www.cnbc.com/2019/06/21/the-federal-reserve-has-another-option-besides-rate-cuts-to-battle-a-slowdown.html