Fed to Reduce Its Balance Sheet

Sep 21, 2017

The Federal Reserve did not raise the federal funds rate at its September meeting. It did announce that it would begin to sell off “securities it bought at the height of the financial crisis.” The Federal Reserve bought $4.5 trillion in securities to stabilize the markets. It will begin to sell $6 billion per month of Treasury bonds, $4 billion per month in agency debt and mortgage backed securities. The amount sold every month will increase until it hits $30 billion in Treasury bonds and $20 billion in other debt sales. By purchasing securities, the Federal Reserve pumped money into the financial system. The markets and the economy have become addicted to the vast amounts of money that the Fed created. Now that the Fed is selling securities, it will be taking money out of the financial system. If the Fed continues selling $50 billion worth of securities every month, it will take 71 months to reduce its balance sheet.