Wednesday, May 17, 2017
Managing the Fed’s Balance Sheet
Before the 2008 financial crisis, the Federal Reserve (Fed)'s balance sheet stood at less than 1 trillion dollars, around half in treasury securities. The balance sheet is now nearly 4.5 trillion dollars, more than half in treasury securities and 40% in mortgage-backed securities, gathered to stabilise the financial system and promote recovery. There is pressure to reduce these holdings while growth is robust and the financial system relatively stable. Three questions are outstanding -- when the Fed starts the process, how and what the eventual size of the balance sheet should be. Complicating matters, the term of Fed Chair Janet Yellen ends in February 2018.