At the end of the fourth quarter 2018, the unwinding of the Fed’s holdings of Treasurys, Agency MBS, and Agencys continues on autopilot. The gradual ramp up in the cap on reinvestments has reached its maximum. From now until the program ends – which has yet to be determined by policymakers – the size of the balance sheet should decrease steadily and modest somewhere near $150 billion per quarter. Since the reductions began in the third quarter 2017, the size of the Fed’s holdings has fallen from about $4.3 trillion to $3.9 trillion. The cumulative decline is around $361 billion.
Chair Jerome Powell has indicated no change in the program is contemplated, that interest rate adjustments will remain the main tool of monetary policy, and that so far a smaller balance sheet has not disrupted markets while shrinking.
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