Yesterday, the FOMC announced that they will not change the range of the Federal Funds Target Rate which is currently between 1.00% and 1.25%. However, they did reiterate the statement they made in July regarding the unwinding of their balance sheet. Since the Great Recession, the assets of the Federal Reserved have grown to almost $4.5 trillion, yes trillion.
If you lived to be 80 years of age, to have a $4.5 trillion on your balance sheet you would have to save $153 Million each day of your life.
Below is a chart showing the increase in the Federal Reserve balance sheet over the past 15 years. The spike during the 08-09 financial crisis is glaring. The second round of quantitative easing started in late 2010 and QE3 in 2012.
In October, the Fed will be dipping their toe in the water and will be selling $10 Billion worth bonds ($6 Billion of Treasuries and $4 Billion of mortgage back securities). Janet Yellen emphasized that they balance sheet run-off will be gradual and predictive which she equated to “watching paint dry”.
The Federal Reserve is in unchartered territory and in February, Yellen’s term as Federal Reserve chair is up for reappointment. President Trump will have to nominate the next chairperson. Since Jimmy Carter, it has been the norm for the current president to re-nominate the previous president’s appointee.
Paul Volcker was nominated by Carter and Reagan reappointed Volcker.
Alan Greenspan was nominated by Reagan and then reappointed by Bush 41.
Bush 41 gave Greenspan another term and then was reappointed by Clinton.
Bush 44 appointed Greenspan again and then nominated Ben Bernanke.
Ben Bernanke was reappointed by Obama and then nominated Janet Yellen.
I don’t have an opinion of who should be Fed chair but I do like the fact that new administrations kept status quo with respect to the leader of our monetary policy. Also, Trump can get some political capital from the Democrats if he decides to keep Yellen (Obama nominee) as Fed chair. It seems like a layup.