Sorry if I am late to the party on this issue but I stumbled on a story today about how the Federal Reserve is struggling to unwind their bond portfolio that was purchased after the housing crisis. It turns out that early last year the Federal Reserve had accumulated around $4.5 trillion in government debt (treasuries, mortgages, etc...). I knew the balance sheet was big, but I honestly had no idea it was at this scale.
As the economy started to improve the Fed decided to unwind the portfolio. It sounds like that plan is not going so well and they have only been able to sell around $300 billion so far over 1 year into the program of unwinding.
I guess the point of my post is two fold... 1) Why isn't this a bigger deal? The entire national debt is close to $20 trillion, the Federal Reserve has 25% of this amount on their books? And 2) What happens if they can't sell most of it before the next recession? I would imagine they are not selling because if they flood the market with Treasuries and MBS's interest rates will skyrocket, but it seems like continuing to artificially depress interest rates forever could backfire someday. I don't know how exactly, but it just doesn't feel right.
Thoughts?
Submitted July 24, 2018 at 08:01PM by warrenfgerald https://ift.tt/2NI3G6R
