As the market expects the Federal Reserve to increase rates three times this year, the central bank could put a fourth on the books in a way that's not so obvious.
An additional increase — call it a stealth hike — would involve a concerted reduction in the Fed's balance sheet. The balance sheet holds the various bonds and other financial instruments the Fed has purchased over the years, and it has ballooned to $4.5 trillion.
Under current policy, whenever a bond held by the Fed matures, it reinvests the proceeds it receives and rolls over the debt. By doing that, it keeps the central bank as a player in the bond market, which in turn creates demand and stifles supply to keep interest rates low.
Reversing the reinvestment policy, then, would have the opposite effect. Officials have begun some discussion in recent months about balance sheet policy but have not offered details or a timetable.
Some market participants think that could change Wednesday — if not from the post-meeting statement from the Federal Open Market Committee, then from Chair Janet Yellen at her news conference afterward.