The Federal Reserve System can reduce the volume of bonds of the US and various government agencies, mortgage and other securities on balance from the current $ 4.5 trillion to about $ 3 trillion, predict Wall Street economists Michael Gapen of Barclays (LON: BARC) and Blue Putnam of the CME Group.
The Fed said this Wednesday that it plans to launch a program to normalize its assets this year, but did not specify the precise amount to which it wants to reduce these investments, noting that the details will clear up as the plan progresses.
Economists at Bank of America (NYSE: BAC) Merrill Lynch, Deutsche Bank (DE: DBKGn), Goldman Sachs, Morgan Stanley (NYSE: MS), RBC Capital Markets and TD Securities believe that more details will be released in September and the Fed will start cutting assets shortly after that, writes The Wall Street Journal.
According to Gapen, who heads the department of economic research at Barclays in the US, normalization will begin in October this year and will last three years; as a result, the volume of assets on the balance sheet will decrease to $ 3 billion.
Putnam believes that by 2022, the volume of the Fed's assets will be from $ 2.8 trillion to $ 3 trillion, or no more than 12% of US GDP.
Before the financial crisis, when the Fed portfolio included only US bonds, but not mortgage papers, its size did not exceed $ 900 billion, or 6% of GDP. Currently, on the balance of the US Central Bank there are US Treasuries worth $ 2.5 trillion and mortgage bonds worth $ 1.8 trillion, and the total portfolio is equivalent to almost a quarter of the US GDP.
In their assessments, experts proceed from the initial parameters of the declines announced by the Fed: the reinvestment of the principal amount will be reduced by $ 10 billion per month - $ 6 billion for US Treasuries and $ 4 billion for mortgage bonds. Every three months, these amounts will increase by $ 6 billion and $ 4 billion, respectively, until they reach $ 30 billion for US Treasuries and $ 20 billion for mortgage securities.