After months of debate, the Federal Reserve has a plan to shrink its $9tn balance sheet as it tries to tighten monetary policy and tackle the highest inflation in decades.
Details of the plan were contained in minutes from the latest policy meeting in March, when Federal Open Market Committee implemented the first interest rate increase since 2018 and signalled its intention to continue raising it to a “neutral” level that neither fuels nor slows growth.
Besides interest rates rises, shrinking the balance sheet is the second pillar of the Fed’s plan to scale back the huge injection of monetary stimulus pumped in to the economy at the onset of the pandemic.
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