FOMC Statement Indicates Additional Pressures to Cut Back Cash Supply

2/17/2010-The Federal Reserve said its officials last month discussed how and when to begin reducing the central bank's $2.26 trillion balance sheet, with a number of policy makers urging the bank to start selling assets in the "near future." Fed officials however, were unanimous in the belief that it would have to shrink its assets and banks' excess cash "substantially over time" and return the Central bank's holdings to traditional treasuries, according to minutes from the Federal Open Market Committee (FOMC) meeting on January 26 to the 27th. In addition, Fed officials discussed adjusting their statement to call "holdings" of mortgage-backed securities rather than "purchases." When leaving his congressional testimony on February 10th, Fed Chairman Bernanke said he didn't expect the Central Bank to sell any assets in the "near term." Also, the Committee discussed raising the discount rate by 25 basis points in an effort to normalize liquidity. The announcement initially caused a slight pullback from the major US equity indices, but they were quickly able to regain footing in choppy trading.