08 Mar.
The Fed pumped more than $1 trillion dollars into the economy quickly, but it plans to take it out glacially, said Brian Sack, who runs the markets group at the New York Fed.
The Fed is on course to own more than $1.25 trillion worth of mortgage backed securities by the end of March. As the economy improves it wants to reduce those holdings, but officials don’t want to do it in a jarring way. Sack noted that some of these holdings will run off naturally. By the end of 2011, more than $200 billion worth of mortgage securities mature or will be prepaid by borrowers.
Sack noted that another $140 billion worth of Treasury securities mature by the end of 2011. Right now the Fed is reinvesting cash it gets as Treasury securities mature, but it could decide to let those securities run off too, shrinking its balance sheet even more.
“With this approach, the FOMC would be shrinking its balance sheet in a gradual and passive manner,” he said. “That, in my view, is a crucial message for the markets.
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08 Mar.
