But what’s happening with mortgage-backed securities?
Thursday afternoon, the Fed released its weekly balance sheet for the week ending November 1. This completes the first month of the QE unwind, or “balance sheet normalization,” as the Fed calls it. But curious things are happening on the Fed’s balance sheet.
On September 20, the Fed announced that the QE unwind would begin October 1, at the pace announced at its June 14 meeting. This would shrink the Fed’s balance sheet by $10 billion a month for each of the first three months. The shrinkage would then accelerate every three months. A year from now, the shrinkage would reach $50 billion a month – a rate of $600 billion a year – and continue at that pace. This would gradually destroy some of the trillions that had been created out of nothing during QE.
Over the five weekly balance sheets since the QE-unwind kick-off date, total assets rose initially by $10 billion from October 4 to October 18 and then fell by $14 billion, for a net decline of $4 billion. By November 1, total assets were $4,456 billion:
The Fed is supposed to unload $10 billion in October. Instead it unloaded $4 billion. And the variations from week to week are entirely in the normal range of the prior months.
The chart below shows the Fed’s total assets since 2007, covering the entire QE period from the Financial Crisis on. The tiny $4-billion decline in October gets lost in the massive table mountain of assets:
But a first real step has happened.As part of the $10 billion that the Fed said it would shrink its balance sheet in October, it was supposed to unload $6 billion in Treasury securities...MUCH MORE.