The Federal Reserve is on a path to shrink the size of its massive stock of cash and bonds for several more years, and will likely also face several more years of negative net income as well, a report from the New York Fed said Tuesday.
for 2022, the bank said that Fed holdings, which now stand at $8.7 trillion, will likely fall to around $6 trillion by the middle of 2025 before holding steady for around a year. Holdings are then expected to grow to maintain balance with the growth of the economy and tick back up to $7.2 trillion by 2030.
Aggressive purchases of Treasury and mortgage bonds kicking off at the onset of the coronavirus pandemic in March 2020 more than doubled the size of the SOMA, which peaked last summer at just shy of $9 trillion. The Fed is now allowing just shy of $100 billion per month in bonds it owns to expire and not be replaced.
"The projections for negative net income suggest that remittances to the U.S. Treasury will be suspended for some time, and that the deferred asset recorded on the Federal Reserve’s balance sheet reflecting the accumulated net loss will continue to grow," the report said. , which has taken in $2 trillion per day or more from money market funds and other firms for many months, should contract over time, in part due to money managers gaining greater certainty over the economic outlook.
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