Fed VP Stanley Fischer commented on SOMA maturities in his speech last Friday, but it appears very few have taken notice as yet and even fewer comprehend the challenge soon confronting The Fed.
Many believe that Twist had pushed maturities farther “into the future”. The “future” is Q1 2016. (Note: a shrinking balance sheet is a defacto tightening)
Via Scotiabank’s Dov Zigler,
With more than USD 200bn of Treasury securities held by the Fed due to mature in 2016, the Fed will have to make meaningful monetary policy choices in advance.
The Federal Reserve has expanded its balance sheet tremendously since 2008, bringing it from USD 900bn in August 2008 to USD4.5tn today. The balance sheet expansion also involved an extension of the weighted average maturity of the Federal Reserve’s System Open Market Account (SOMA), accomplished by purchasing longer-dated Treasury securities outright via Large Scale Asset Purchase programs (popularly called ‘quantitative easing’) as well as via a maturity extension program whereby the Fed sold securities with maturities of fewer than three years to buy securities with longer maturities (so-called ’Operation Twist’). As a result of the latter process, by which the Fed sold essentially all of the Treasury securities that it held with maturities of three years or fewer by the end of 2012, the SOMA has not experienced meaningful maturity of Treasury securities from 2013 probably throughout this year. During this period, the Fed also pledged to reinvest principal from maturing mortgage backed securities (MBS) on its balance sheet, which prevented the SOMA from shrinking — a process which the Fed has continued. Even once the Fed completed its asset purchases in November 2014, it therefore still found itself able to remain on a fairly accommodative auto-pilot as its balance sheet was not (and is not) meaningfully contracting.
This state of affairs will not continue indefinitely. As shown in the chart to the right, USD 210bn of Treasury securities mature in 2016, with roughly two-thirds of that amount maturing during the first part of the year. This implies that the Federal Reserve will have to make decisions about the trajectory of monetary policy between now and the start of 2016 — indecision would be a difficult and increasingly unpalatable option, itself tantamount to a decision to tighten monetary policy as the Fed’s balance sheet would shrink.
full article at source here :http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/03/20150308_fed1.jpg