Speaking of minimalist actions, the Federal Reserve has been in standby mode since its last overnight interest rate increase on July 26, 2023.
They did make a change to their “quantitative tightening” program when they gathered in early May. As you likely know, the Federal Reserve bought trillions of dollars of US Treasury bonds and mortgages during the COVID economic downturn to keep interest rates very low.
Since June 2022, every month the Federal Reserve has been allowing $60 billion of US Treasury bonds and $35 billion of mortgage securities to mature without reinvesting the proceeds. Starting on June 1, they will reduce the monthly amount of unreinvested US Treasury bonds to $25 billion per month.
This step could result in slightly lower interest rates as the reduced supply of bonds causes bond prices to remain higher. However, the more likely reason for this change is to improve the liquidity and functioning of the government debt markets as the Federal Reserve believes it can attain its target portfolio value with a less aggressive glidepath of maturities.
As of this writing, bond traders are pricing in the Federal Reserve’s first overnight interest rate reduction in September (50/50) or November (60/40). Recent economic reports have shown reasonably strong employment with sticky inflation. Before the Federal Reserve initiates its first rate reduction, they will need to see signs of future higher unemployment or signs inflation will renew it downward trajectory toward their 2% annual target. Until then, no action is warranted.