U.S. Fed officials weigh shrinking balance sheet by US$95B per month
BNN Bloomberg
The U.S. Fed signaled it will reduce its massive bond holdings at a maximum pace of US$95 billion a month, further tightening credit across the economy as the central bank raises interest rates to cool inflation
The Federal Reserve signaled it will reduce its massive bond holdings at a maximum pace of US$95 billion a month, further tightening credit across the economy as the central bank raises interest rates to cool the hottest inflation in four decades.
Minutes of their March meeting released Wednesday also showed that “many” officials would have preferred to raise rates by a half percentage point -- instead of the quarter-point move they made -- but decided not to in light of Russia’s invasion of Ukraine.
The maximum total, composed of US$60 billion in Treasuries and US$35 billion in mortgage-backed securities, compares with the peak rate of US$50 billion a month the last time the Fed trimmed its balance sheet from 2017 to 2019.
“Participants generally agreed that monthly caps of about US$60 billion for Treasury securities and about US$35 billion for agency MBS would likely be appropriate,” the Fed said Wednesday in minutes of the March 15-16 Federal Open Market Committee meeting. “Participants also generally agreed that the caps could be phased in over a period of three months or modestly longer if market conditions warrant.”
The FOMC is expected to approve the balance-sheet reduction at its next gathering May 3-4. The roadmap for shrinking the balance sheet came via a staff presentation to officials.
“Participants agreed they had made substantial progress on the plan and that the Committee was well placed to begin the process of reducing the size of the balance sheet as early as after the conclusion of its upcoming meeting in May,” the minutes showed.
