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The Federal Reserve ended its QE3 large-scale asset purchase program already in 2014, which consisted of monthly purchases of billions of US Treasuries and mortgage-backed securities (MBS). But the Fed never did really end QE. The Fed reinvested the principal of maturing bonds automatically into new bonds. The Fed´s balance sheet thus never shrunk. Until this month. The Fed has now finally decided to no longer automatically reinvest the principal of maturing bonds. The grand finale of QE is beginning and, in a certain sense, it is only beginning now. How will the Fed´s balance sheet reduction be executed and what will be the consequences?

The Trajectory of the Fed´s Balance Sheet

Source: UFM Market Trends, Federal Reserve

Source: ecb, Bank of Japan, fed, macrobond, seb

Consequences of the Fed´s Balance Sheet Reduction

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