Business: Fed says bond maturity runoff will be key tool to sink balance sheet

“The Committee intends to reduce the Federal Reserve’s securities holdings over time in a predictable manner primarily by adjusting the amounts reinvested of principal payments received from securities held in the System Open Market Account (SOMA),” the Fed said in principles released at the end of the central bank’s two-day policy-setting meeting.

The Federal Reserve will depend basically on letting bond possessions run off the balance sheet as they mature, rather than selling bonds by and large, as it tries to manage its huge portfolio, the national bank said on Wednesday. The Fed’s almost $9 trillion portfolio had doubled in size during the pandemic as the central bank snapped up Treasury bonds and mortgage-backed securities to help markets and the economy. Policymakers are presently creating a plan for diminishing those property, yet Fed officials should proceed cautiously as they contract their holdings.

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Fed officials also said they expect they will begin reducing the central bank’s balance sheet after they start raising interest rates.

And the Fed said it intends to hold mainly Treasury securities in the longer run, reducing its footprint on other types of credit.

“The Committee is prepared to adjust any of the details of its approach to reducing the size of the balance sheet in light of economic and financial developments,” the Fed said in a statement.

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