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Not only that they increased the rate, but also they'll reduce the buying of securities: "In addition, the Committee expects to begin reducing its holdings of

Not only that they increased the rate, but also they'll reduce the buying of securities: "In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting." Which may have a bigger effect.

ayngg 5y ago
IIRC they have already stopped purchasing them as of a week ago I think, they were supposed to announce their plans on quantitative tightening (selling the things they bought) which is what that quote is referring to.
- nickles 5y ago
  > they have already stopped purchasing them as of a week ago To clarify, they are still purchasing securities, but at a rate that does not increase the size of their balance sheet. As debt matures, they reinvest the principle in new securities to maintain the size of the balance sheet. When the Fed discusses QT right now, they’re talking about reducing these purchases, so the net impact is a smaller balance sheet. As an aside, it’s possible to get a sense of how much the Fed intends to reduce the size of the balance sheet this year based on Powell’s comments today. He indicated the impact on financial conditions would be roughly equivalent to an extra rate hike. IIRC every $100B is estimated to shift rates by 3bps. At 25bps a hike, the balance sheet reduction would be roughly $800B.
  - ayngg 5y ago
    Ah ok, thanks for the clarification!
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mtremsal 5y ago
> Which may have a bigger effect. Could you please explain? Isn't that just a way to "enforce" the target rate in auctions to the primary market?
- avrionov 5y ago
  Here is a good explanation: https://www.brookings.edu/blog/up-front/2021/07/15/what-does-the-federal-reserve-mean-when-it-talks-about-tapering/ https://www.brookings.edu/blog/up-front/2021/07/15/what-does... The federal reserves buys bonds / treasures and mortgage backed securities. It has an effect on long term interest rates and mortgages (keeping the interests low).
  - mtremsal 5y ago
    I see. Thank you. I thought these purchases had stopped years ago when in fact the balance has never been higher.
deleted 5y ago
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ayngg 5y ago

IIRC they have already stopped purchasing them as of a week ago I think, they were supposed to announce their plans on quantitative tightening (selling the things they bought) which is what that quote is referring to.

nickles 5y ago
> they have already stopped purchasing them as of a week ago To clarify, they are still purchasing securities, but at a rate that does not increase the size of their balance sheet. As debt matures, they reinvest the principle in new securities to maintain the size of the balance sheet. When the Fed discusses QT right now, they’re talking about reducing these purchases, so the net impact is a smaller balance sheet. As an aside, it’s possible to get a sense of how much the Fed intends to reduce the size of the balance sheet this year based on Powell’s comments today. He indicated the impact on financial conditions would be roughly equivalent to an extra rate hike. IIRC every $100B is estimated to shift rates by 3bps. At 25bps a hike, the balance sheet reduction would be roughly $800B.
- ayngg 5y ago
  Ah ok, thanks for the clarification!

deleted 5y ago

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mtremsal 5y ago

> Which may have a bigger effect. Could you please explain? Isn't that just a way to "enforce" the target rate in auctions to the primary market?

avrionov 5y ago
Here is a good explanation: https://www.brookings.edu/blog/up-front/2021/07/15/what-does-the-federal-reserve-mean-when-it-talks-about-tapering/ https://www.brookings.edu/blog/up-front/2021/07/15/what-does... The federal reserves buys bonds / treasures and mortgage backed securities. It has an effect on long term interest rates and mortgages (keeping the interests low).
- mtremsal 5y ago
  I see. Thank you. I thought these purchases had stopped years ago when in fact the balance has never been higher.

deleted 5y ago

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