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The Fed's stock of Treasury bonds and mortgage backed securities is projected to decline by roughly USD2.6 trillion by mid-2025, to about USD5.9 trillion, when the central bank's run-off of assets is likely to cease to maintain an adequate level of bank reserves, the New York Fed said on Tuesday.
In its baseline projection, the Fed expects to reduce its holdings of Treasury securities to USD3.9 trillion in 2025 from USD5.3 trillion today, while continuing to reduce its holdings of mortgage-backed securities to USD1.2 trillion by 2030 from USD2.6 trillion today. The Fed has been reducing its Treasury holdings by as much as USD60 billion per month and MBS by USD35 billion per month and the report suggests the central bank sees its securities holdings as a share of NGDP settling around 20%.
The New York Fed's annual report on its open market operations also sees reserve balances falling to USD2.4 trillion in 2026 from USD3.4 trillion today before rising again and reaching nearly USD2.8 trillion in 2030. The Fed projects reserve balances as a share of NGDP settling at around 8%.
The report also highlighted risks around the Fed's transition to a smaller balance sheet at a time when interest rates are rising. The NY Fed report shows that under a baseline where the funds rate remains at its current level thru December, the Fed will face new income losses of USD89 billion this year.
Source: New York Fed
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.