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FOMC Minutes Suggest Balance Sheet May Begin Shrinking This Year

Wednesday, April 5, 2017 18:17
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(Before It's News) / by Marc Chandler / Apr 5, 2017

The FOMC minutes were clear that officials are contemplating beginning address the balance sheet, which is another sign of confidence in the normalization process.  However, beyond that very little else is clear.   There does not appear to be much agreement yet on the pace or the scope of the adjustment.

There are roughly $425 bln of US Treasuries that are maturing next year.  The Fed also own Mortgage Backed Securities (MBS).  Over the past 12 months, the Fed has reinvestment about $350 bln of maturing MBS securities. Officials have indicated a preference to return to an all-Treasury balance sheet in the long-term, but this does not mean it needs to focus on MBS in the short-term.    Indeed, there seemed to stop rolling over maturing issues of both asset classes.

There was also no light shed on the relationship between the Fed’s balance sheet and the rate adjustment cycle.  At her press conference following last month’s FOMC meeting, Yellen reiterated that the Fed funds target is the main tool of monetary policy.  However, Dudley has suggested that maybe the Fed would pause its rate hikes as it turned to the balance sheet.  During the asset purchase operations, Fed officials argued that it was the holding (stock) rather than the buying (flow) that was the key to policy.  Reducing its holdings (reducing the balance sheet) would then seem tantamount to rate increases.


The post FOMC Minutes Suggest Balance Sheet May Begin Shrinking This Year appeared first on Silver For The People.


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