Fed building winter FOMC

Full text of the Minutes.

Balance sheet:

  • Many participants judged that the appropriate pace of balance sheet runoff would likely be faster than it was during the previous normalization episode
  • Many participants also judged that monthly caps on the runoff of securities could help ensure that the pace of runoff would be measured and predictable
  • Participants noted that the current size of the balance sheet is elevated and would likely remain so for some time after the process of normalizing the balance sheet was under way.
  • several participants noted that the SRF could facilitate a faster runoff of the balance sheet than might otherwise be the case
  • some participants expressed a preference for the Federal Reserve's asset holdings to consist primarily of Treasury securities in the longer run
  • expectations for the timing of the first decline in the balance sheet were diffuse
  • Almost all participants thought likely to be appropriate to start balance sheet runoff at some point after first hike


  • All participants noted that inflation had continued to run notably above the 2% Fed target
  • Several participants pointed to the possibility that structural factors that kept inflation low in the previous decade may reemerged when the effects of the pandemic abate
  • A couple participants noted reports of higher inflation expectations and the potential to effect anchoring of inflation expectations
  • Participants generally continued to stress uncertainties associated with the length of time required to resolve the supply chain situation
  • participants generally expected supply chain problems at least 'well into' 2022


  • On maximum employment condition, most participants judged could be met relatively soon if the recent pace of labor market improvements continued
  • Participants noted a number of signs that the US labor market was very tight

Yields higher and USD stronger in the aftermath of the FOMC minutes. My focus is on the balance sheet because the Fed doesn't know what it's going to to with rate hikes but we're just now learning about balance sheet plans. Waller hinted at some of this and certainly sounds like he wants to let it runoff quickly, if not actively sell bonds. This kind of talk is going to keep the bond market on edge for awhile. It would be helpful for the Fed to sketch out a plan but lately they don't have much credibility on the balance sheet after announcing a taper, then doubling it a month later.