Expert insight

The Fed’s plan to shrink its balance sheet, quickly

May 10, 2022

What’s behind the faster pace of quantitative tightening?
The Fed’s balance sheet roll-off: Different circumstances, different plan
Annotations on a line chart showing the Fed’s balance sheet indicate that its holdings expanded to $4.2 trillion, or 24% of nominal GDP, in November 2014. Annotations also indicate that the Fed’s holdings expanded to $8.5 trillion, or 35% of nominal GDP, in early 2022. Vanguard projections show the Fed reducing holdings over the coming years. A shaded area shows Vanguard’s projection of the optimal balance sheet size rising from 2015 beyond 2027. A table within the chart shows the inflation gap at negative 0.5%, the unemployment gap at 0.7%, and the output gap at negative 2.1% in November 2014. For May 2022, the table shows the inflation gap at 3.1%, the unemployment gap at negative 0.4%, and the output gap at negative 1.3%.
Why interest rates will remain the Fed’s primary tool
A challenging environment for central banks ahead

Contributors

Brian Quigley
Vanguard Information and Insights

Get Vanguard news, insights, and timely analysis on the market, delivered straight to your inbox.

Read our privacy policy to learn about how we keep personal information private.

* Indicates a required field

Vanguard Information and Insights

Thank you for subscribing to Economics & markets.

You'll be notified when new content is published, but will only ever receive one email a day from Vanguard Insights.

Vanguard logo

Vanguard is the trusted name in investing. Since our founding in 1975, we've put investors first.