The Federal Reserve plans to announce on Wednesday that it will start to reduce its portfolio of assets in excess of $4.5 trillion. After the financial collapse of 2007-2009, the Fed enacted bond-buying measures to prevent America’s largest banks from failing. The reduction in assets marks another move to bring the financial crisis measures to an end.
Many analysts speculate the Fed will start reducing its balance sheet in October. According to reports, the Fed will gradually stop buying bonds at a slow pace, and markets will barely move in response to the measure. Economists believe it will take several years before the Fed can reduce its balance sheet down to $3 trillion.
In 2008, the Fed’s balance sheet was roughly $900 billion. As the mortgage crisis hit its peak, the Fed began buying mortgage-backed securities in an attempt to spur growth and reduce unemployment.
The president of the Reserve Bank of Philadelphia, Patrick Harker, said the asset-unwinding measures will move slowly. Years of careful planning will keep the process very quiet. According to Harker. “Some people will have a better time watching paint dry,”
Many economists believe the Fed will leave target interest rates unchanged at its next meeting. A new batch of financial projections from the Fed are expected, which will lay the groundwork for any interest rate hikes going forward.
With unemployment at half of the recession-era peak, the U.S. Federal Reserve could be the first worldwide central bank to start removing financial crisis measures. Janet Yellen, the chair of the U.S. Federal Reserve, has raised the benchmark rate for banks four times in her tenure. Yellen does not plan to sell the current assets in the Fed’s balance sheet, but to stop buying bonds and stop reinvesting the yield from bonds that are about to mature.