An overlooked Fed policy comes into focus as central bankers weigh how to slow ‘QT’
Central bank officials are expected this week to discuss a strategy for how to slow the shrinking of the Federal Reserve’s balance sheet, a lesser-known policy tool they have used to tighten financial conditions while fighting inflation.
Over the last two years, the Fed has shed roughly $1.5 trillion in Treasury and mortgage bonds that it accumulated while trying to stimulate the economy during the early parts of the pandemic, at a pace of roughly $100 billion every month.
Allowing those bonds to mature acts to push up long-term interest rates as more bonds have to be snapped up by…