Bakers, millers gain from ho-hum reaction to Fed

by Josh Sosland
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Josh Sosland
Grain-based foods should breathe a sigh of relief by how financial markets took in stride the Federal Reserve Bank’s decision to begin shrinking its balance sheets. Ever since the Fed launched its bond buying program during the financial crisis in 2008, questions have been raised about how markets would respond when the central bank began unwinding its ownership of more than $1 trillion in securities.

Indeed, interest rates surged briefly and stock prices gave ground in 2013 when the Fed began publicly discussing plans to reduce the pace at which it was purchasing new bonds, an initial step toward eventually ending the program completely. By contrast, the reaction was calm in June when the plan for the Federal Reserve to shrink its balance sheet was floated and last week when it was affirmed. Only about $5 billion in assets per month will be allowed to run off the central bank’s portfolio without reinvestment, a figure that may eventually climb to $50 
billion a month.

Over the last 10 years, the milling and baking industries have capitalized on the low-interest environment to help renew aging asset bases. Increasingly, this pursuit of heightened efficiency has been recognized in the industry as a “never-ending process.” The Fed’s plan to shrink its unprecedented balance sheet is not without risk. Together with all interested in the health of the U.S. economy, this important move forward will be watched by grain-based foods with care and hope.
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