How Does the Fed Adjust its Securities Holdings and Who is Affected?

29 Pages Posted: 26 Sep 2017

See all articles by Jane E. Ihrig

Jane E. Ihrig

Federal Reserve Board - International Financial Transactions

Lawrence Mize

Board of Governors of the Federal Reserve System

Gretchen C. Weinbach

Federal Reserve Board

Date Written: 2017-09-22

Abstract

The Federal Open Market Committee indicated in its September 2017 post-meeting statement that it will initiate in October a balance sheet normalization program to gradually reduce its securities holdings. This action will put in place a policy of reinvesting and redeeming portions of the principal payments received by the Federal Reserve from its holdings of Treasury and agency securities. How are these adjustments to the Federal Reserve’s securities holdings transacted and who is affected? This paper provides a primer regarding how the Federal Reserve accounts for these securities transactions. It also illustrates the numerous ways that the Federal Reserve's actions can play out across other sectors of the economy, including those that engage directly with the Federal Reserve and those that are involved indirectly as funds change hands.

Keywords: FOMC, Federal Reserve Board and Federal Reserve System, Balance sheet management, Balance sheet policy, Monetary policy normalization, Securities redemption, Securities reinvestment

JEL Classification: E52, E58, M41

Suggested Citation

Ihrig, Jane E. and Mize, Lawrence and Weinbach, Gretchen Cope, How Does the Fed Adjust its Securities Holdings and Who is Affected? (2017-09-22). FEDS Working Paper No. 2017-099. Available at SSRN: https://ssrn.com/abstract=3042513 or http://dx.doi.org/10.17016/FEDS.2017.099

Jane E. Ihrig (Contact Author)

Federal Reserve Board - International Financial Transactions ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-452-3372 (Phone)
202-736-5638 (Fax)

Lawrence Mize

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Gretchen Cope Weinbach

Federal Reserve Board ( email )

United States
202-452-2841 (Phone)

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