The U.S. central bank may not be able to finish the task it's about to start. Federal Reserve officials aim eventually to reduce its $9 trillion balance sheet by $95 billion a month. At that pace, even already fat pre-pandemic levels of assets might not be reached until early 2027. That's a long time in economics, and in politics.
U.S. Federal Reserve Chair Jerome Powell testifies before a Senate Banking, Housing, and Urban Affairs Committee hearing on the Fed's "Semiannual Monetary Policy Report to the Congress," on Capitol Hill in Washington, U.S., March 3, 2022. REUTERS/Jonathan Ernst/PoolWASHINGTON, April 7 - The U.S. central bank may not be able to finish the task it's about to start. Federal Reserve officials aim eventually to reduce its $9 trillion balance sheet bya month.
The Fed’s stock of assets has ballooned over the last 15 years. It was less than $1 trillion before the 2008 financial crisis, which spurred the central bank to purchase bonds to support the economy. Thetopped $4.5 trillion in 2015 and remained around that level until then-Chair Janet Yellen began shrinking it in 2018 as she handed over to incumbent Jerome Powell.
The Fed mobilized again in the wake of the pandemic's arrival in early 2020. It more than doubled its assets to about $9 trillion at the end of last month. Now with inflation at a 40-year high, the Fed wants to offload Treasury securities and agency mortgage-backed securities at a higher pace than during the last tightening phase, according to minutes of the March rate-setting committee meeting released on Wednesday.
A lot could happen in the meantime. A flattening Treasury yield curve may be foreshadowing a potential recession. The November midterm elections might shift control of Congress from Democrats to Republicans, affecting fiscal policy. And there’s a presidential race in 2024. That's all aside from geopolitical upheaval like Russia's invasion of Ukraine.its QT program earlier than expected in 2019 to head off perceived problems.
- FOMC participants generally agreed that maximum monthly reductions of about $60 billion for Treasury securities and about $35 billion for agency mortgage-backed securities would likely be appropriate. They also agreed that the caps might be phased in over a period of three months. The reduction process could begin after the FOMC's next scheduled meeting on May 3-4.Editing by Richard Beales and Pranav KiranOpinions expressed are those of the author.
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