Original title: Fed QE important signal: portfolio size will increase to a peak of $9 trillion in 2023
The New York Fed said in its annual report on its open market account (SOMA) released on Monday that with continued asset purchasesThe SOMA portfolio is likely to expand, reaching $9 trillion by 2023, accounting for 39% of GDP in the United States. The benchmark forecast largely reflects the expectations of market participants and is based on the results of surveys of primary dealers and market participants.
After that, as the FOMC monetary policy position normalizes, the evolution path of the portfolio will depend on the policy choice. The New York Fed provided a series of possible results in its forecast.The size of the SOMA portfolio may stabilize at US $9 trillion or as low as US $6.6 trillion。
As for the composition of the SOMA portfolio, the New York Fed expects that if maturing securities are reinvested, the Fed's portfolio size could remain stable until 2025 (that is, about 70 per cent is US Treasuries and about 30 per cent is MBS).
The New York Fed market team also predicts that the balance of reserves on the liability side of the Fed's balance sheet is expected to peak at $6.2 trillion by the end of 2022. Since then, as the SOMA portfolio has remained unchanged through reinvestment, reserve balances have begun to decline steadily and non-reserve liabilities have increased accordingly.
On the other hand, according to a New York Fed survey of market participants and primary dealers, respondents believe thatThe Fed's reinvestment in maturing Treasury bonds and mortgage-backed securities will continue until the fourth quarter of 2025.The Fed reported:
Market participants now believe that the Fed's purchases of US bonds and institutional MBS will continue at the current rate of $120 billion a month until the end of 2021, and thenGradually reduced to zero by the end of 2022。”
The survey also shows that the median federal funds rate will stabilize at 0.125% by the third quarter of 2023, rise to just over 2% by the end of 2026, and finally stabilize at 2.25% for a long time. In the long run, the yield on 10-year Treasuries and the fixed rate on 30-year main mortgages rose to 2.5 per cent and 4.1 per cent, respectively.
For a long time, the New York Fed has been responsible for managing the SOMA, and the securities assets held by SOMA dominate the asset side of its balance sheet. In addition, it also includes assets such as US Treasuries and mortgage-backed bonds (MBS) that were transferred during the Fed's unconventional monetary policy. And because of that,The size of the SOMA portfolio is closely related to changes in the Fed's balance sheet.Market participants often see it as a development of the Fed's (QE) policy of quantitative easing.The signal of when the table will be shrunk.。
As of last week, the Fed's portfolio was slightly less than $8,000bn, up from about $4.1 trillion at the beginning of 2020, according to the latest data.