Fed starts experiment of letting $8.9 trillion portfolio shrink
Fed starts experiment of letting $8.9 trillion portfolio shrink
Abstract
The Federal Reserve is about to start shrinking its $8.9 trillion balance sheet, deploying a second tool along side higher interest rates to curb inflation. The process officially commences on Wednesday, the first U.S. Treasury securities won’t run off until June 15. The Fed is capping monthly runoff at $47.5 billion — $30 billion for Treasuries. Those thresholds will then double to a combined $95 billion. That compares to a peak of $50 billion a month. But it’s not clear how much impact the balance sheet. The reduction will work in tandem with interest rate Increases to cool price pressures by tightening financial conditions.