Fed balance sheet to start growing again in early 2020 - Wells Fargo

Analysts at Wells Fargo,  expect the balance sheet, next year, to start growing organically again, eventually reaching $5 trillion in 2029 while in the near term, they see Fed’s holdings of Treasuries to rise roughly $175 billion in 2020 and $280 billion in 2021.

Key Quotes: 

“We confirm our earlier finding that shrinkage of the Fed’s balance sheet likely will stop at the end of 2019 at a terminal size of roughly $3.6 trillion, with about $1.1 trillion in excess reserves.”

“Starting next year, we expect the balance sheet to start growing organically again, eventually reaching $5 trillion in 2029. In terms of composition, we assume that mortgage-backed securities (MBS) continue to roll off indefinitely. As a result, in the near term, we expect the Fed’s holdings of Treasuries to rise roughly $175 billion in 2020 and $280 billion in 2021, with T-bills comprising about $50 billion and $80 billion of those totals, respectively. Sizable Fed Treasury holdings and a return to the bill market likely mean lower Treasury yields and a steeper curve than would otherwise be the case.”