Fed likely to begin quantitative tightening by Q1 2018, says Danske Bank

The United States Federal Reserve is expected to begin its quantitative tightening by the first quarter of 2018 while the consensus among both primary dealers and analysts is mid-2018. The Federal Open Market Committee (FOMC) members still want quantitative tightening to be 'conducted in a passive and predictable manner'.

In terms of the economic development, there was not much new in the FOMC minutes revealed yesterday, as the FOMC members have already been quite outspoken since the meeting.

However, as Fed Chair Janet Yellen said at the press conference following the meeting, the FOMC participants discussed when to change the current reinvestment strategy (which states that the Fed will continue to reinvest principal payments until the normalization of the Fed funds rate is 'well under way').

Further, the minutes say that 'a change to the Committee s reinvestment policy would likely be appropriate later this year'. The minutes also suggested that quantitative tightening would likely depend on the Fed funds target range or the level of an economic variable (possibly the PCE inflation rate or the unemployment rate, as it was the case with the Evans rule).

Meanwhile, the Fed staff still expects the Trump administration to ease fiscal policy but has 'pushed back the timing of when those policy changes were anticipated to take effect'.