The Federal Reserve’s holdings of securities — Treasurys, Agency MBS, and Agencys — totaled about $3.6 trillion as of July 31, 2019. Since the FOMC announced on July 31 the conclusion of the reduction of SOMA holdings as of August 1, that means that the size of the Fed’s balance sheet will remain at about that level going forward.
Chair Jerome Powell said the decision was made as a matter of “simplicity and consistency”, two things the Fed has tried to maintain during the program to reduce the Fed’s holdings which was begun nearly two years ago. The ultimate size of the balance sheet is larger than first envisioned, but still about $640 billion lower than the $4.3 at its peak.
The Fed will continue to slowly reduce its holdings of Agency MBS by reinvesting maturing securities into Treasurys under a $20 billion per month cap.
While the FOMC maintains that administered short-term rates are its primary tool of monetary policy, the conclusion of the balance sheet program will also bring to an end criticism that the Fed is exercising “quantitative tightening” of monetary conditions.
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