The Federal Reserve's 25 basis-point increase in short-term interest rates pushed them above 1% for the first time since the 2008 financial crisis, and may still have been the central bank's least intriguing move on Wednesday.
Trading in rate futures, after all, indicated a 90% chance of a hike before the June 14 session concluded, according to Bloomberg data.
What investors were more eager to receive -- and didn't really expect -- was an update on how the Fed will wind down a balance sheet that ballooned to $4.5 trillion as it bought billions of dollars a month in government debt and mortgage-backed securities to buoy the economy after the crisis.
But the central bank delivered on that score, too, detailing a plan to slowly pare the amount of proceeds from maturing securities that are reinvested. Chair Janet Yellen said the process will probably start later this year, but declined to be more specific.
To avoid spooking financial markets, the Fed will cap the total amount of securities that roll off its portfolio each month at $10 billion initially, then raise the cap by the same amount every three months until it reaches $50 billion. The maximum is derived by combining a $6 billion initial limit on Treasury notes that gradually climbs to $30 billion with a $4 billion starting cap on maturing agency debt and mortgage-backed securities that moves incrementally toward $20 billion.
"By limiting the volume of securities that private investors will have to absorb as we reduce our holdings, the caps should guard against outsize moves in interest rates and other market strains," Yellen said at a news conference after the committee meeting.