The U.S. Federal Reserve Wednesday commenced winding down the massive stimulus program it embarked on to rescue the economy from the 2008-09 financial crisis. As expected, the Fed also unanimously declined to raise interest rates this month.
After its two-day policy meeting, the Federal Open Market Committee released a statement containing key language that points to starting the move in September. At that time, the central bank will begin rolling off the $4.5-trillion portfolio of bonds it has accrued on its balance sheet, mostly in the years following the crisis and the Great Recession that crisis generated.
Efforts by the U.S. central bank to reduce the balance sheet will involve allowing a capped level of proceeds from the bond portfolio to run off each month. The rest would be reinvested as usual. The program will start at $10 billion a month and increase quarterly to $50 billion. Fed officials estimate that once the program starts to ease up, the balance sheet likely still will exceed $2 trillion.
Chair Janet Yellen has indicated that the balance sheet runoff should not be disruptive to markets, though some expressed concern that it could push up rates if demand for the bonds is weak.
