Since it began the balance sheet expansion, the Fed has reinvested the proceeds it gets from bonds each month to keep the size stable. In a program that is expected to be announced in September, the Fed will begin letting a specified size roll off each month and reinvest the rest. The roll-off target will be small and increase quarterly until it reaches $50 billion a month.

Current market expectations are that the Fed will keep rolling off proceeds until the balance sheet hits around $2 trillion to $2.5 trillion, a process that could take four or five years. Fed Chair Janet Yellen likes to say the process will be akin to “watching paint dry” and won’t be disruptive to markets.

However, skeptics question whether it will be so painless.

“Against this historical portrait, a pressing question arises: will credit markets and equity volatility remain quiescent moving into the second half of next year when balance sheet reduction and rate hikes — a double-barreled tightening — begin to move along at full force?” Darda said.

He believes that if the Fed follows a slow trajectory that is mindful of low inflation trends “then we think there will be nothing to worry about.” However, he cautions that the Fed may not have as much room to tighten policy as it thinks.

Markets generally seem to agree with Darda.

While Fed officials have indicated that one more rate hike this year is likely, traders give it just a 45.5 percent chance, according to the CME. Fed funds futures contracts imply a rate by the end of 2018 at 1.45 percent, which point to barely two rate increases between now and the end of next year.

By contrast, Fed projections released in June pointed to four moves during the same period.

Various economists, including a group calling itself Fed Up, are urging policymakers to increase their current inflation target from 2 percent and hold off on further rate hikes.

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