REPEAT: FOMC: Bal Sheet Cuts 'Relatively Soon;' No Rates Hint

Repeats Story Initially Transmitted at 21:12 GMT Jul 26/17:12 EST Jul 26

--No Change to Inflation Outlook; Nods to Decline in 'Overall' Infl 

--Rates Steady At 1.00%-1.25% Target Range

By Jean Yung

     WASHINGTON (MNI) - The Federal Reserve, as expected, stood pat on its

benchmark interest rate Wednesday and said it will start trimming its $4.5

trillion balance sheet "relatively soon" according to the plan set out in June.

     Officials dropped no hints they were wavering from their plan to continue

to lift rates gradually in the coming months, meaning the Fed stayed on course

to increase the target range for the fed funds rate by another 25 basis points

by the end of the year from the current range of 1.00% to 1.25%.

     Investors are seeing the odds of an increase at the December FOMC meeting

at about 50-50, according to the CME Group's FedWatch tool earlier Wednesday.

The odds of a move at its next meeting in September were lower than 10%.

     After a two-day meeting, the Federal Open Market Committee made only modest

changes to its policy statement and its assessment of economic conditions at the

conclusion of its July meeting.

     "The Committee expects to begin implementing its balance sheet

normalization program relatively soon," the Fed said -- updating the timing of

the move from "this year" -- "provided that the economy evolves broadly as

anticipated."

     On the latter point, the Fed in its assessment of the economic outlook

Wednesday signaled little had changed since their June gathering.

     Policymakers again noted "near-term risks to the economic outlook appear

roughly balanced" and sounded positive about job growth, household spending and

business investment.

     They acknowledged prices continued to rise more slowly than policymakers

would prefer, but did not alter their characterization of the outlook for

inflation from June.

     "On a 12-month basis, overall inflation and the measure excluding food and

energy prices have declined and are running below 2 percent," the Fed said.

Previously it noted only that core inflation had declined.

     But the FOMC repeated: "Inflation on a 12-month basis is expected to remain

somewhat below 2 percent in the near term but to stabilize around the

Committee's 2 percent objective over the medium term."

     Job gains "have been solid" since the beginning of the year, and the

unemployment rate "has declined," the committee said.

     The Fed's preferred measure of inflation, the personal consumption

expenditures price index excluding food and energy, shows prices rose more

slowly in the latest three months. The core PCE decelerated from 1.8% in

February to 1.4% in May.

     Wednesday's decision to keep rates steady received a unanimous vote.

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com