A few words on Fed balance sheet from THE best in the biz (as per Institutional Investors poll detailed by Yahoo HERE)
…This brings us to what is becoming an increasingly discussed front-end topic in the timeline of balance sheet normalization. With total SOMA holdings over $8 trn, it is worth considering the idea that the scale of the pandemic-inspired QE program could necessitate a faster implementation of the beginning of the process of normalization on a more rapid timeline. During the last cycle, QE ended in December 2014, and the Fed did not announce its intention to begin running down the balance sheet until September 2017 with the process commencing in October of that year. The reserve destruction brought SOMA’s holdings from ~$4.2 trn to $3.6 trn before scarce reserves triggered the surge in funding costs in September 2019 that ultimately led to the Fed’s bill buying in the form of “reserve management purchases”. The onset of the pandemic and rapid rollout of QE quickly made the semantics argument around “is buying bills QE?”, a moot point. Bringing this logic to the current paradigm, we think the benefits of keeping an ample reserves regime outweigh the risks of declining holdings by trimming reinvestment à la 2017-2019. Thus far the Fed has been comfortable, and even encouraged by the effectiveness of the RRP in maintaining the integrity of the lower bound despite the unquestionable surplus of cash in the system at the moment. …
Emphasis MINE and serves a good a reminder / summary of (at least one very important aspect of) what happened back THEN. As we all know, if we don’t learn from history we’re doomed to repeat it…