The official who manages the Federal Reserve’s enormous portfolio of securities and cash, Roberto Perli, has a message for anyone who has been concerned about the central bank taking too long to stop shrinking its balance sheet: There is no reason to worry, as of right now.
The Fed has been scaling back its balance sheet–reducing its holdings of Treasury bonds and mortgage-backed securities–since the summer of 2022. Instead of reinvesting the proceeds as some of that debt matures, the bank is holding onto the money, a process that has the effect of raising long-term rates by a small margin because it removes liquidity from the financial system.
Investors had expected the central bank to hint at an end to this process earlier this month, when it announced that it was cutting interest rates by half a percentage point. That didn’t happen.