FOMC: securities holdings to be reduced by $95 billion a month

Federal Open Market Committee members said monthly reductions in securities holdings should be capped at about $60 billion for Treasury securities and about $35 billion for mortgage backed securities. In minutes from the group’s March 15-16 meeting released today, members remarked that balance sheet decline would be faster than over the 2017-2019 period and generally agreed the caps could be phased in over a period of three months.

Members agreed that elevated inflation and a tight labor market warranted the reductions and faster pace. They noted that maintaining large holdings of Treasury bills “is not necessary under the Federal Reserve’s ample-reserves operating framework.”

Participants noted that the implications of the invasion of Ukraine by Russia for the U.S. economy were highly uncertain, but that in the near term, the invasion and related events were likely to create significant additional upward pressure on inflation and could weigh on economic activity. FOMC members said that despite the invasion, economic fundamentals remain solid and they expect economic growth to continue and to sustain a strong labor market.