At the Federal Reserve's two-day policy meeting today and tomorrow, the central bank is widely expected to hike the target range of the federal funds rate by half a percentage point. But central bankers will also release more plans about rolling off the Fed's $9 trillion balance sheet — known as quantitative tightening.
For two years after the onset of the COVID-19 pandemic, the Fed bought over $4 trillion in assets, mostly U.S. Treasurys and mortgage-backed securities, to help stimulate the economy. The Fed finally stopped purchasing bonds in March as the central bank began to pivot toward slowing inflation.
Fed officials have “generally agreed” to selling $60 billion in Treasury securities and $35 billion of mortgage-backed securities each month, according to recent Fed Policy meeting minutes.
That would be a much faster pace than the Fed’s last efforts at quantitative tightening in 2017 to 2019, when the Fed wound down $30 billion for Treasurys and $20 billion for mortgage bonds. In early April, Fed Vice Chair Lael Brainard said the Fed will begin winding down that large portfolio possibly as soon as May.
Since pointing to the balance unwinding, the yield on the 10-year Treasury has logged its biggest monthly increase in more than a decade in April. The yield is now over 3% for the first time since 2018.