After hiking the fed funds rate at both the June and September FOMC meetings, the Fed will begin to phase out the reinvestment of maturing principal on its asset holdings at the December meeting. A pre-announcement of the reinvestment change should come well before then. We also suspect that the Fed will want to maintain a sizeable balance sheet of at least $2.5trn even in the long run, in which case it may not need to reduce its holdings of Treasury securities at all. Balance sheet reduction can be achieved entirely by eliminating MBS holdings.
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