The Fed’s parrot on the shoulder, Jon Hilsenrath, writing in the WSJ, says that the balance sheet, which is on its merry way to $4tn, won’t return to normality until between mid 2019 and 2021.
The headlines are from research published by the Fed themselves after Bernanke said in June that the best way to play it was just to let its portfolio mature. There’s a balance between how much the Fed will pay the Treasury due to the potential different scenarios for interest rates. The Fed is looking at 4.9% for 10 year treasuries which would mean paying the Treasury $910bn in profits. If they are 2% higher then then the Fed will be foregoing profits and the Treasury will go hungry.
The full Fed research is here; The Federal Reserve’s Balance Sheet and Earnings, and the WSJ story (un-gated) is here.
