![]() I called the Fed out the moment it announced the plan on May 4. To ensure a smooth transition, the Committee intends to slow and then stop the decline in the size of the balance sheet when reserve balances are somewhat above the level it judges to be consistent with ample reserves.Over time, the Committee intends to maintain securities holdings in amounts needed to implement monetary policy efficiently and effectively in its ample reserves regime.For agency debt and agency mortgage-backed securities, the cap will initially be set at $17.5 billion per month and after three months will increase to $35 billion per month.The decline in holdings of Treasury securities under this monthly cap will include Treasury coupon securities and, to the extent that coupon maturities are less than the monthly cap, Treasury bills. For Treasury securities, the cap will initially be set at $30 billion per month and after three months will increase to $60 billion per month.Beginning on June 1, principal payments from securities held in the SOMA will be reinvested to the extent that they exceed monthly caps. The Committee intends to reduce the Federal Reserve's securities holdings over time in a predictable manner primarily by adjusting the amounts reinvested of principal payments received from securities held in the System Open Market Account (SOMA). ![]() To understand why, please consider the Fed's Plans for Reducing the Size of the Federal Reserve's Balance Sheet, emphasis mine The chart above shows the Fed's announced plan is bogus. Fed's balance sheet courtesy of the New York Fed, chart by Mish
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