NY Fed's Williams: Officials won't wait as long to shrink balance sheet

BY Reuters | ECONOMIC | 01/14/22 01:00 PM EST

Jan 14 (Reuters) - As Federal Reserve officials remove the extraordinary support offered to the economy during the pandemic, the next step will be to raise interest rates and then reduce the size of the central bank's balance sheet, New York Federal Reserve Bank President John Williams said Friday.

Policymakers will likely not wait as long as they have previously to begin reducing more than $8 trillion in bond holdings, said Williams, noting that the balance sheet is much larger than it was after the last financial crisis.

"The situation is so different in terms of where the economy is and the direction the economy is going," Williams told reporters.

The policymaker said it makes sense for the central bank to remove accommodation this year after seeing dramatic improvement in the labor market and elevated inflation.

(Reporting by Jonnelle Marte; Editing by Andrea Ricci)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.