And we will be keeping an eye on February 20 when $30 billion of treasuries and agencies are expected to roll off, although as explained earlier, the transmission effects are not immediate as would be the case if the Fed were straight-up selling into the markets.
From CNBC, January 25:
The Fed may be moving closer to ending its rally-killing balance sheet reduction
- Fed officials have been discussing when to curtail the reduction in the bonds it is holding on its balance sheet.
- Recent indications from central bank leaders indicate that the end of the program is getting nearer, according to The Wall Street Journal.
- Markets have attributed the tightening of financial conditions in part to the roll-off in proceeds from what had been a $4.5 trillion balance sheet.
Federal Reserve officials are nearing a decision on when to end the reduction of the bonds it is holding on its balance sheet, a key consideration for investors watching how far the central bank will go in tightening monetary policy, according to The Wall Street Journal....MORE
The Fed began the balance sheet roll-off in October 2017 after it had reached more than $4.5 trillion. Wall Street has worried that the operation is adding to market pressure stemming from a series of interest rate hikes that began in 2015.
Further consideration of when to end the roll-off is likely to come up at next week's Federal Open Market Committee meeting, according to the report. The policymaking body has been weighing the balance sheet reduction during its last several meetings, with officials noting in December that the central bank's benchmark funds rate could become volatile as the operation proceeds.
"A lot of the heavy lifting has been done," Kansas City Fed President Esther George told the Journal in a Jan. 15 interview. "We're waiting for the committee to be satisfied that they have reached sufficient understanding of what all the moving pieces are."
The Fed has been reducing its balance sheet by allowing a set level of proceeds from the bonds to roll off each month, while the rest has been reinvested. The maximum roll-off is $50 billion a month, though it is rarely, if ever reached — December saw about a $34 billion reduction in the Treasurys and mortgage-backed securities that are involved in the program. In total, the bond reduction has been about $400 billion.
The central concern is what level of reserves the banking system is comfortable holding. A higher level of reserves in the system corresponds with a higher balance sheet, meaning the Fed could curtail the roll-off earlier than expected.
While Fed officials initially thought the balance sheet reduction could be done with little disturbance to markets, that hasn't been the case. Stocks opened higher Friday, though it wasn't clear whether the Journal's report was feeding into the positive sentiment....
