The Federal Reserve announced on Wednesday his plans to slow down the pace of balance sheet reductionafter having spent much of the first part of the year warning of this change.
The change will be made from June 1, where will reduce the maximum limit of Treasury securities to $25 billion which allows them to expire and not be replaced, compared to the current limit of up to 60,000 million dollars per month.
Furthermore, the institution left 35 billion dollars a month the maximum limit of mortgage-backed securities that will allow you to withdraw from your accounts, and will reinvest any excess payments in Treasury bonds of the principal of mortgage-backed securities.
The reduction in the pace of withdrawals was widely expectedalthough market participants were unsure whether the reduction in the withdrawal process would occur at the meeting of the Federal Open Market Committee (FOMCfor its acronym in English) this week or the one scheduled for June.
Federal Reserve officials have argued that by moderating the pace of reduction, reduce the risk of unwanted market disruptions, such as those that occurred the last time they reduced their balance sheet.
They have also pointed out that Slowing the pace of balance sheet contraction may allow them to further reduce the overall size of their holdings.
After doubling the size of the balance sheet to nearly $9 trillion from its pre-pandemic size, the Fed allowed some of its holdings of Treasuries and mortgage-backed bonds to expire..
That process, begun in the second half of 2022, reduced the Federal Reserve’s balance sheet to $7.5 trillion.
The Fed warned about inflation, but said the next rate move would be lower
The US central bank left interest rates unchanged, in the 5.25%-5.50% rangejust as the market expected, but warned about recent disappointing inflation data and suggested possible stagnation in the movement toward greater balance in the economy.
However, he indicated that he continues to lean towards a eventual reduction in borrowing costs. The president of the Fed, Jerome Powellhighlighted that It is “unlikely” that the next rate move will be upwardssince since Federal Reserve they believe that the monetary policy is “restrictive enough” to reduce inflation to 2%.
