Fed begins balance sheet compression-expands to $ 8.9 trillion in response to Korona-ka-Bloomberg

From June 1, the US Federal Reserve will begin compressing its balance sheet, which has swelled to a total of $ 8.9 trillion (about 1150 trillion yen). It is expected that inflation will be suppressed along with the rate hike, but financial officials do not know how effective it will be.

The Federal Reserve’s balance sheet has doubled in size due to quantitative easing (QE) following the coronavirus disease. The second quantitative tightening (QT) will finally be carried out at almost twice the pace of the previous 2017-19. The actual run-off of US Treasuries (decrease in securities held due to redemption) will start on the 15th, when the equivalent of about $ 15 billion will reach maturity.

Fed’s June Maturities

Four Treasury securities held by the Fed are maturing in June, totaling $48.25 billion, leaving $18.25 billion over the $30 billion runoff cap to be reinvested

Source: New York Fed

Initially, the pace of run-offs will be capped at $ 30 billion for US Treasuries and $ 17.5 billion for agency bonds and mortgage-backed securities (MBS), for a total of $ 47.5 billion. In September, it will be expanded to a total of 95 billion dollars (breakdown: US Treasury bonds 60 billion dollars, agency bonds MBS 35 billion dollars), which is almost double the previous time (up to 50 billion dollars).

US financial officials say that balance sheet compression will bring tightening financial conditions in parallel with rate hikes, which will help calm upward pressure on prices, but the extent of the effect is unclear.Federal Reserve Board (FRB) board members on May 30LectureHe pointed out that the estimation “using various models and assumptions” is “highly uncertain.”