According to the calendar announced at the previous meetings, the rate of reduction, which was 47.5 billion dollars per month, will increase to 95 billion dollars as of September.
The Fed’s balance sheet shrinkage will accelerate this week. The Central Bank will increase the monthly upper limit for the amount of treasury and mortgage-backed securities to $60 billion and $35 billion, respectively.
According to the news in Bloomberg, this means that the central bank will finally start to empty the Treasury bonds that it started saving almost three years ago. September will be the first month in which the results of the balance sheet reduction will be reflected, as coupons will fall below the monetary authority’s new upper limit.
According to Bloomberg, the Fed’s portfolio has $43.6 billion in Treasury coupons due in September, which means officials must also drop $16.4 billion in bonds. It will also need to let another $13.6 billion go in October. This will be the most significant drop for the invoice portfolio through September 2023. In September 2019, the Fed began buying approximately $60 billion a month of Treasury bonds to strengthen its reserve balances alongside daily repo operations. The economic turmoil caused by the pandemic has spurred a wave of fiscal and monetary stimulus as the bank expects to purchase bonds by the second quarter of 2020. Then, as its financial system was flooded with cash, reserves remained redundant.
