August 9, 2024 (NO COMMENTS)

Promoting the discount window may be the Fed’s key to shrinking its $7trn balance sheet, says Bill Nelson

 

When it comes to its balance sheet, the Federal Reserve seems to be stuck in a feedback loop it could feasibly resolve – without the aid of science fiction. The Fed is shrinking its securities portfolio by allowing some US Treasuries to mature without replacement – a process known as quantitative tightening (QT). As its assets shrink, so do its liabilities, in particular reserve balances – commercial bank deposits at the Fed. Limits on how far reserve balances can decline will determine when QT