Special Research Report: Federal Reserve – Midyear 2017

Following the rounds of quantitative easing that pushed the Federal Reserve’s balance sheet to $4.5 trillion, the Federal Reserve has outlined plans to reduce the size of its holdings.  This will accelerate its effort to move toward more normalized monetary policy following nearly a decade of easing.  Although the Federal Reserve has raised short-term interest rates four times since the financial crisis took them to zero, the balance sheet has remained consistently near $4.5 trillion as interest and proceeds from investments have been rolled over into new securities.

However, that process is about to change, with members outlining plans to allow $6 billion of Treasury securities and $4 billion in mortgage-backed securities to roll off the balance sheet per month to move toward normalization.  The Fed plans to gradually increase the amount allowed to mature to $30 billion in Treasurys and $20 billion in mortgage-backed assets as the process moves forward.  The winddown is expected to transpire at a cautious pace over several years, with a primary focus on market stability.

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