Minutes of meeting to detail rapid reduction in Fed balance sheet

U.S. central bank officials on Wednesday will release more details on the evolution of a three-year plan to cut several trillion dollars from the stock of assets acquired by the Federal Reserve to stabilize financial markets during the coronavirus pandemic. coronavirus, its next step on the path to tightening credit and reducing inflation.

The balance sheet reductions, which officials say could begin as early as May, were discussed at the Fed’s March meeting.

The minutes of that meeting, to be released at 15:00 (GMT), could indicate how quickly and to what extent monetary policymakers will act to get rid of the $4.6 trillion in Treasuries and mortgage-backed securities accumulated since March. of 2020.

The central bank will “continue to tighten monetary policy methodically through a series of interest rate hikes and begin to reduce the balance sheet at a rapid pace as early as our May meeting,” said the director and Fed vice-chair nominee, Lael Brainard, last Tuesday.

Referring to the period from 2017 to 2019, when it took the central bank a year to hit a pace of $50 billion in monthly reductions, Brainard said, “I expect the balance sheet to shrink considerably faster” this time around.

Last month, the Fed raised interest rates by 0.25 percentage point, the first in a series of hikes expected this year and next.

Shrinking the Fed’s portfolio feeds further pressure on credit markets by lowering demand for the assets the central bank holds, which increases pressure on interest rates.

While estimates of the impact vary, Fed Chair Jerome Powell said after the March meeting that the cuts could have the same effect as an additional 0.25 point hike in the short-term rate that the central bank uses as its benchmark. main tool.