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MNI DATA FORECASTS: EZ Inflation, US Payrolls In Focus
MNI BRIEF: Fed Seen Shrinking Balance Sheet To USD6T- Richmond
The Fed will be able to shrink its balance sheet through quantitative tightening to a trough of USD6 trillion from USD8.4 trillion today, with reserves reaching a minimum level of USD2.3 trillion, according to a Richmond Fed analysis published Wednesday.
"Just by allowing the securities to mature, it would take the Fed two to three years to reach a normalized size of its balance sheet," coauthors Huberto Ennis and Tre' McMillan wrote, estimating normalization will be done by late 2025 or early 2026.
The projections suggest the Fed can continue QT for longer and lower the amount of reserves in the system a touch lower than investors expect. The median expectation in the December 2022 Survey of Market Participants conducted by the New York Fed saw QT ending in the fourth quarter of 2024, with the central bank's balance sheet at USD6.25 trillion and reserves dipping to USD2.375 trillion.
Source: Richmond Fed
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