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

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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.

Suggested Citation

  • Jane E. Ihrig & Lawrence Mize & Gretchen C. Weinbach, 2017. "How Does the Fed Adjust its Securities Holdings and Who is Affected?," Finance and Economics Discussion Series 2017-099, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2017-99
    DOI: 10.17016/FEDS.2017.099
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    File URL: https://www.federalreserve.gov/econres/feds/files/2017099pap.pdf
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    References listed on IDEAS

    as
    1. Deborah Leonard & Antoine Martin & Simon M. Potter & Brett Rose, 2017. "How the Fed Changes the Size of Its Balance Sheet: The Case of Mortgage-Backed Securities," Liberty Street Economics 20170711, Federal Reserve Bank of New York.
    2. Carpenter, Seth & Demiralp, Selva & Ihrig, Jane & Klee, Elizabeth, 2015. "Analyzing Federal Reserve asset purchases: From whom does the Fed buy?," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 230-244.
    3. Deborah Leonard & Antoine Martin & Simon M. Potter, 2017. "How the Fed Changes the Size of Its Balance Sheet," Liberty Street Economics 20170710, Federal Reserve Bank of New York.
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    More about this item

    Keywords

    FOMC; Federal Reserve Board and Federal Reserve System; Balance sheet management; Balance sheet policy; Monetary policy normalization; Securities redemption; Securities reinvestment;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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