On Tuesday, May 24th, US Eastern time, the New York Federal Reserve predicted that the roadmap outlined in the May FOMC resolution statement would reduce the scale.The Fed's balance sheet is expected to fall back to $5.9 trillion by mid-2025.At that timeThe Fed is expected to hold 68 per cent of US Treasuries and 32 per cent of mortgage-backed securities (MBS).

Earlier in the article on Wall Street, it was mentioned that the Federal Reserve will begin to reduce its holdings of US Treasuries and mortgage-backed securities from June. Initially, it plans to reduce US Treasuries and MBS by up to US $30 billion per month, and three months later, the maximum monthly reduction limit is doubled to US $95 billion per month. But Fed officials expect them to eventually slow the process as they approach the level of bank reserves needed to ensure adequate liquidity.

Since former Federal Reserve Chairman Ben Bernanke brought QE into the US monetary policy framework, the Fed's balance sheet has opened up a path of expansion that is easy to release and difficult to accept: between the last round of QE and QT (between 2009 and 2019), large-scale asset purchases led to a roughly quadrupling of the Fed's balance sheet; since the outbreak of the epidemic in 2020, the Fed's balance sheet has expanded by 2.25 times.

The New York Fed's forecast shows that the shrinking table will average $80 billion a month by the end of 2024.The Fed's position is likely to remain around 22 per cent of US GDP by mid-2025 and then start to increase its asset holdings again about a year later.

The Fed's portfolio composition remained largely unchanged during the contraction period, with 68 per cent of Treasuries and 32 per cent of institutional mortgage-backed securities by the end of 2025, according to the report. The New York Fed's forecast assumes that any bond purchased in future reserve management will be treasury bonds. This will make the portfolio allocation to about 86 per cent of US Treasuries and 14 per cent of institutional mortgage-backed securities by 2030.

In addition, the Federal Reserve has recently been trying to curb America's overheated economy and the fastest rate of inflation in four decades by raising interest rates.Higher interest rates could make the Fed's debt costs higher and increase unrealized losses held by the Fed, but the Fed also said these unrealized losses should not interfere with its ability to execute monetary policy, the report said.

Investors' risk aversion has risen as Wall Street analysts have downgraded their market forecasts, arguing that the Fed's aggressive monetary tightening could plunge the US economy into recession.

Faced with the prospect of a rapid rise in interest rates and the advent of a huge balance sheet that will begin to shrink next month, investors are increasingly enthusiastic about using the Fed's overnight reverse repurchase tool. As mentioned in an earlier article on Wall Street, 94 institutions deposited a total of $2.045 trillion at the Federal Reserve on Monday through the overnight reverse repurchase (RRP) tool, which exceeded $2 trillion for the first time in history. The previous record was $1.988 trillion set on Friday.