Loretta Mester, Speech: The FOMC’s Plan for Significantly Reducing the Federal Reserve’s Securities Holdings

“The plan draws on our experience from October 2017 through August 2019 when the FOMC reduced the balance sheet of some of the assets that had been purchased in the wake of the Great Recession. But there are some important differences. Last time, runoff caps were initially set at $6 billion per month for Treasuries and $4 billion per month for agency securities, and the phase-in was very gradual, with caps increasing by $6 billion and $4 billion, respectively, every 3 months over the next 12 months, to $30 billion for Treasuries and $20 billion for agency securities. This time, the phase-in is only 3 months and the monthly runoff caps total $95 billion, almost twice the size as last time. Another difference is that, last time, balance-sheet reduction started almost two years after liftoff of the funds rate from zero; this time it is starting about 2-1/2 months after liftoff. I note, though, that even though the gap between liftoff and the start of balance-sheet reduction is much shorter this time, the level of the target range is not that different – only 25 basis points lower this time – because the funds rate rose very slowly last time.”