With the U.S. inflation rate at an almost 40-year high, Federal Reserve officials are likely to start shrinking their $8.77 trillion balance sheet earlier than they did the last time around from 2017 to 2019, and at a pace that may be twice as fast.
That’s according to Roberto Perli, a former senior Fed staffer in Washington, who envisions an initial reduction that starts at $20 billion per month for the first quarter, starting in June or September, and gradually rises to a $100 billion monthly pace by around the following year.
Read: As Wall Street watches yields climb, a big question emerges: What is the ‘right size’ for the Federal Reserve’s balance sheet? Minutes of the Fed’s Dec. 14-15 meeting, released Jan. 5, revealed that the policy-setting Federal Open Market Committee almost uniformly thought it would be appropriate to initiate balance-sheet runoff at some point after the first rate hike.
Read: Forget Rate Hikes. How the Fed Handles Its $9 Trillion in Assets Is What Really Matters and Fed Weighs Proposals for Eventual Reduction in Bond Holdings
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