Timing, Strategy and Impact of Normalizing The Fed’s Balance Sheet
​In the attached Macro Quick Hit we highlight three issues related to Fed balance sheet normalization. First, most normalization projections assume reserve balances in the neighborhood of $500 billion, however, two Fed staff papers published this year use a materially lower reserves baseline (and imply faster run off and a smaller balance sheet). Second, the Fed's desire to hold "primarily" Treasury securities is going to be difficult to achieve on MBS prepayment run off alone and argues against the FOMC evenly splitting the run off cap between Treasuries and MBS, which would result in a larger MBS portfolio at the end of 2022 than a MBS-first policy. Third, we offer some thoughts related to market expectations and effects on yields and spreads from Fed balance sheet normalization.
RDQ Economics provides global macroeconomic consulting services with an emphasis on U.S. economic fundamentals and monetary policy.
Our views are driven by consistent application of classical economic and monetary principles and has generated superior anticipation of changes in the stance of monetary policy and of movements in economic growth and inflation.
The founders of RDQ Economics, John Ryding and Conrad DeQuadros, have a combined experience of 26 years on Wall Street, 12 years of experience in central banking at the Federal Reserve and the Bank of England and nine years in the independent research space. John and Conrad have worked closely with fixed income, foreign exchange, and equity traders and portfolio managers, which has enabled their analysis and advice to be tailored to a clientele that is focused on trading and investment decisions.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.