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In January 2016, shortly after the first rate hike, the FOMC said that it anticipated continuing to reinvest maturing securities until normalization of the level of the fund rate was “well under way.” In June 2017, after raising the funds rate for the fourth time to 1-1.25%, the FOMC announced that runoff would start “this year.” It also updated its normalization principles to note that runoff would begin at $10bn per month ($6bn UST, $4bn MBS) and gradually ramp up by $10bn per month every three months to a peak pace of $50bn per month. In July 2017, the FOMC provided a second warning that runoff would start “relatively soon.” In September 2017, the FOMC announced the start of runoff, effective the next month. In December 2017, the FOMC resumed rate hikes after having paused them in the lead-up to runoff. In 2018, the pace of runoff rose gradually from $10bn per month to a peak of $50bn per month. In September 2018, the Fed began a periodic Senior Financial Officer Survey that asked banks about their “lowest comfortable level of reserve balances” in order to estimate how much it could shrink aggregate reserve balances, the liability that declines as UST and MBS run off on the asset side. In March 2019, the FOMC slowed the pace of runoff to reduce the risk of overshooting the long-run level of reserves required by the new ample-reserves monetary policy implementation regime. In July 2019, the Fed announced that it would stop reducing the total size of its System Open Market Account (SOMA) portfolio and begin to reinvest up to $20bn per month of maturing MBS in Treasury securities in order to shift the composition of the portfolio toward Treasuries over time. In October 2019, as it became clear that runoff had overshot, the Fed resumed Treasury purchases to grow the balance sheet again in order to ensure that the supply of reserves remained ample. |
