How will it be done
The Fed is expected to start reducing the size of its balance sheet by stopping the policy of reinvestment instead of actively selling securities. Ferris and al. project that the balance sheet will fall by roughly $600 billion per year for the first two years, $400 billion in the third year and $300 billion in the fourth year. Eventually, the Fed will hold roughly equal quantities of Treasury debt and MBS.
Confidence Interval Projections of the Federal Reserve Balance Sheet and Income
By: Erin E. Syron Ferris, Soo Jeong Kim, and Bernd Schlusche – Federal Reserve Board
Narayana Kocherlakota advocates deliberate sales based on economic conditions as opposed to stopping reinvestment as a better way to reduce the size of the Fed’s balance sheet.
The Fed Is Making a $2 Trillion Mistake
By: Narayana Kocherlakota – University of Rochester
