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Comment: Fed’s balance sheet holdings down to $3,723.0 billion as of May 1

The month of April marked the end of the first phase of reductions in the size of the Fed’s balance sheet holdings of Treasurys, Agency MBS, and Agencys. Since the start of balance sheet normalization in the fourth quarter 2017, the size of securities held has fallen from about $4.3 trillion to $3.7 trillion to-date.

On March 20, the FOMC announced it would keep the monthly caps for reinvestments in Treasurys at $30 billion and Agency MBS at $20 billion through April. Starting in May, the monthly cap for Treasurys would be reduced to $15 billion for month through August 2019 and end in September. The cap for Agency MBS reinvestments would remain at $20 billion with reinvestments shifting to Treasurys starting in October and only the excess to be reinvested in Agency MBS.

The wind-down in reinvestments could still be said to be on autopilot and running in the background. However, with the FOMC adopting an “abundant reserves” framework for interest rate policy, the program of reinvestments is nearing its conclusion and the Fed’s holdings will remain very large in comparison to pre-crisis conditions.

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