Fed to Reduce Bond Holdings, Setting Stage for Higher Mortgage Rates

(CN) — The Federal Reserve announced Wednesday that come October it will start shedding some of the massive portfolio of bonds it amassed after the 2008 financial crisis, a move that could mean higher mortgage rates in the new year.

At a news conference, Federal Reserve Chair Janet Yellen said the central bank will allow some of the bonds on its $,5 trillion balance sheet mature without being replaced.

The reductions will begin in October with a target of $10 billion a month — comprised of about $6 billion in Treasury bonds and $4 billion in mortgage bonds  — and that will increase to $50 billion a month in 2018.

Yellen also announced Wednesday that the Fed will leave its short-term interest rate unchanged, at least until its final meeting of the year, in December.

The fed chair, who’s term ends in February, said the bank believes that the persistently low inflation in the United States the past four years is a temporary phenomena tied to the strength of the job market and a strong U.S. dollar overseas, among other factors.

In its policy statement, the Fed said while hurricanes Harvey, Irma and Maria have been devastating, history suggests the monster storms will likely have little effect on the national economy over the long haul.

Yellen declined to say whether she expects to be appointed to a second term by President Donald Trump, who has sent mixed signals about his intentions and spoken favorably of several other candidates for the job.

The Associated Press contributed to this report.

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