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A Monetarist View of the Fed’s Balance Sheet Normalization Period

Author

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  • Marcelo Veracierto

Abstract

The Federal Reserve currently holds over $4 trillion in fixed-income assets. However, since the fall of 2017 the Fed has been in a ?balance sheet normalization period,? during which the size of its balance sheet is gradually shrinking over time. In particular, the Federal Open Market Committee (FOMC) has been instructing the Federal Reserve trading desk to reduce its security holdings by reinvesting principal payments only to the extent that these payments exceed gradually raising caps. These caps on redemptions will be maintained until the Fed considers that its balance sheet has reached a desirable size.

Suggested Citation

  • Marcelo Veracierto, 2018. "A Monetarist View of the Fed’s Balance Sheet Normalization Period," Economic Perspectives, Federal Reserve Bank of Chicago, issue 2, pages 2-14.
    • Handle: RePEc:fip:fedhep:00031
    DOI: 10.21033/ep-2018-2
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    Cited by:

    1. Michal Franta & Tomas Holub & Branislav Saxa, 2018. "Balance Sheet Implications of the Czech National Bank's Exchange Rate Commitment," Working Papers 2018/10, Czech National Bank.

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