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what does this mean/imply: > In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed s

what does this mean/imply: > In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities

88913527 4y ago
In short, it means this line will go down: https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL You can see it went up substantially in 2020 and 2021.
- WebbWeaver 4y ago
  And 2008 (without going back down). The component from 2008 AFAIK is mostly the mortgage backed securities. I don't endorse everything this guy is saying but it is an interesting article https://www.axios.com/2022/05/18/fed-mortgage-portfolio https://www.axios.com/2022/05/18/fed-mortgage-portfolio
datalopers 4y ago
The fed has been keeping the prices of these artificially inflated through QE. They've stopped buying (they aren't selling yet, but simply letting securities mature) and the massive reduce in demand leads to a decline in prices of the corresponding assets.
- dragonwriter 4y ago
  > The fed has been keeping the prices of these artificially inflated through QE No, as the word “continue” implies, it has been, and plans to go on with, keeping the prices artificially low via Quantitative Tightening. QE ended a while back.
  - datalopers 4y ago
    QE4 ended in March '22. I'm not sure the particular nuances of the timeline matter to the person asking the question.
kloch 4y ago
Currently, it means they will continue to let some small part of the securities the Fed hold on their balance sheet mature without immediately re-investing the proceeds. Outright sales of these securities are another option that they seem reluctant to do at this point. Either way this has the effect of reducing the amount of money in the system (the opposite of QE where they created money out of thin air to buy the securities in the first place).
deleted 4y ago
[deleted]
cpitman 4y ago
During the pandemic (and also during the response to 2008 recession) the Fed has been injecting cash into the market by buying Treasury securities and mortgage-backed securities. This is what "Quantitative Easing" is, and is a relatively new tool used by the Fed that they started leaning on when interest rates really could not go much lower. (https://en.wikipedia.org/wiki/Quantitative_easing https://en.wikipedia.org/wiki/Quantitative_easing) Now the Fed has a really large backlog of these securities, and they are starting to unwind that by selling those securities off, effectively removing cash from the economy and slowing down economic activity (and therefore hopefully inflation).
chomp 4y ago
https://www.federalreserve.gov/newsevents/pressreleases/monetary20220126c.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... https://www.federalreserve.gov/newsevents/pressreleases/monetary20220504b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... The Federal Reserve has been working for the past few months agreeing on a plan to reduce the balance sheet. They are just saying that they are still continuing this work.
HillRat 4y ago
This is what's called "open market operations," and it's basically the first echelon of attack on inflation. If the Fed sells government (and government agency) securities, then banks buy them, returning money to the Treasury and reducing the banks' lending liquidity. By reducing the money supply, the Fed can put a brake on inflation. The overall implication is that the Fed either wants a sharp anti-inflationary shock, or believes that longer-run secular inflation is in the cards, and is willing to cool the economy to manage that risk.
- wincy 4y ago
  Do the banks have to buy them? Why do they buy them? Wouldn’t the bank have an advantage if it had liquidity when nobody else does?
  - redblacktree 4y ago
    The banks buy them for the risk-free return.
    - wincy 4y ago
      That makes sense. If the US government defaults on their debt the bank has more important things to worry about.
csense 4y ago
The linked Implementation Note says $60B / month of Treasury and $17.5B / month of MBS, with the latter doubling to $35B / month in September. The Implementation Note says it only applies as principal is paid, so this is an upper bound. According to the maturity distribution at https://www.federalreserve.gov/releases/h41/ https://www.federalreserve.gov/releases/h41/ the Fed has effectively all of its MBS with maturity > 1 year, with the vast majority over 10 years. AFAIK we don't have any other maturity information that "over 10 years", but I might assume it's 20 years on average because it's uniformly distributed between 10-30 years (AFAIK 30 years is typically the max mortgage time in the US). Dividing $2.7 trillion by 240 months gives $11.25 billion per month. Which implies an increase of the cap from $17.5B to $35B is a no-op, as rollover would already be maxed a little over $11B. So why bother? Any bond / Fed experts able to shine a light on what's wrong with my numbers?

what does this mean/imply: > In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities

88913527 4y ago

In short, it means this line will go down: https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL You can see it went up substantially in 2020 and 2021.

WebbWeaver 4y ago
And 2008 (without going back down). The component from 2008 AFAIK is mostly the mortgage backed securities. I don't endorse everything this guy is saying but it is an interesting article https://www.axios.com/2022/05/18/fed-mortgage-portfolio https://www.axios.com/2022/05/18/fed-mortgage-portfolio

datalopers 4y ago

The fed has been keeping the prices of these artificially inflated through QE. They've stopped buying (they aren't selling yet, but simply letting securities mature) and the massive reduce in demand leads to a decline in prices of the corresponding assets.

dragonwriter 4y ago
> The fed has been keeping the prices of these artificially inflated through QE No, as the word “continue” implies, it has been, and plans to go on with, keeping the prices artificially low via Quantitative Tightening. QE ended a while back.
- datalopers 4y ago
  QE4 ended in March '22. I'm not sure the particular nuances of the timeline matter to the person asking the question.

kloch 4y ago

Currently, it means they will continue to let some small part of the securities the Fed hold on their balance sheet mature without immediately re-investing the proceeds. Outright sales of these securities are another option that they seem reluctant to do at this point. Either way this has the effect of reducing the amount of money in the system (the opposite of QE where they created money out of thin air to buy the securities in the first place).

deleted 4y ago

[deleted]

cpitman 4y ago

During the pandemic (and also during the response to 2008 recession) the Fed has been injecting cash into the market by buying Treasury securities and mortgage-backed securities. This is what "Quantitative Easing" is, and is a relatively new tool used by the Fed that they started leaning on when interest rates really could not go much lower. (https://en.wikipedia.org/wiki/Quantitative_easing https://en.wikipedia.org/wiki/Quantitative_easing) Now the Fed has a really large backlog of these securities, and they are starting to unwind that by selling those securities off, effectively removing cash from the economy and slowing down economic activity (and therefore hopefully inflation).

chomp 4y ago

https://www.federalreserve.gov/newsevents/pressreleases/monetary20220126c.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... https://www.federalreserve.gov/newsevents/pressreleases/monetary20220504b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... The Federal Reserve has been working for the past few months agreeing on a plan to reduce the balance sheet. They are just saying that they are still continuing this work.

HillRat 4y ago

This is what's called "open market operations," and it's basically the first echelon of attack on inflation. If the Fed sells government (and government agency) securities, then banks buy them, returning money to the Treasury and reducing the banks' lending liquidity. By reducing the money supply, the Fed can put a brake on inflation. The overall implication is that the Fed either wants a sharp anti-inflationary shock, or believes that longer-run secular inflation is in the cards, and is willing to cool the economy to manage that risk.

wincy 4y ago
Do the banks have to buy them? Why do they buy them? Wouldn’t the bank have an advantage if it had liquidity when nobody else does?
- redblacktree 4y ago
  The banks buy them for the risk-free return.
  - wincy 4y ago
    That makes sense. If the US government defaults on their debt the bank has more important things to worry about.

csense 4y ago

The linked Implementation Note says $60B / month of Treasury and $17.5B / month of MBS, with the latter doubling to $35B / month in September. The Implementation Note says it only applies as principal is paid, so this is an upper bound. According to the maturity distribution at https://www.federalreserve.gov/releases/h41/ https://www.federalreserve.gov/releases/h41/ the Fed has effectively all of its MBS with maturity > 1 year, with the vast majority over 10 years. AFAIK we don't have any other maturity information that "over 10 years", but I might assume it's 20 years on average because it's uniformly distributed between 10-30 years (AFAIK 30 years is typically the max mortgage time in the US). Dividing $2.7 trillion by 240 months gives $11.25 billion per month. Which implies an increase of the cap from $17.5B to $35B is a no-op, as rollover would already be maxed a little over $11B. So why bother? Any bond / Fed experts able to shine a light on what's wrong with my numbers?