Fed to Taper Balance Sheet Run-Off by up to $30 Billion in Treasurys, $20 Billion in Mortgage-Backed Securities
The Federal Reserve said Wednesday it plans to slowly shrink the pile of Treasury and mortgage-backed securities it accumulated during three rounds of asset purchases, marking an end to a key strategy it took in response to the financial crisis.
In a document unveiled alongside its post-meeting statement Wednesday, Fed officials outlined separate paths for shrinking Treasury and mortgage-backed assets in its portfolio. Initially, the Fed would allow $6 billion of Treasury securities to roll off its balance sheet monthly once they mature. That amount would rise by $6 billion every three months over the course of year, at which point the central bank will be rolling off $30 billion in Treasurys a month.
The Fed said it would roll off its mortgage-backed assets more slowly, at a rate of $4 billion a month, with the caps rising by $4 billion every three months until reaching $20 billion a month.
The Fed said the moves would begin later this year "once normalization of the level of the federal-funds rate is well under way," but did not specify a date.
The caps would remain in place until the Fed holds "no more securities than necessary to implement monetary policy," the statement said. It didn't specify the final size of the balance sheet but said it would be "appreciably below that seen in recent years but larger than before the financial crisis."
Officials said they wanted to maintain using short-term interest rates as "the primary means" of making monetary policy but they didn't rule halting the balance sheet run-off if a downturn caused the Fed to reduce interest rates once more. In a separate move, officials also voted to raise its benchmark federal-funds rate Wednesday to a range of between 1% and 1.25%.
The Fed had previously said it planned to use caps to shrink its balance sheet but had not disclosed the details of its plans.
Three rounds of asset purchases, known as quantitative easing, swelled the Fed's portfolio to $4.5 trillion in the years following the financial crisis. Since then, officials have been reinvesting securities as they matured in order to keep the balance sheet level.
(END) Dow Jones Newswires
June 14, 2017 14:15 ET (18:15 GMT)