"In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting."
Which may have a bigger effect.
To clarify, they are still purchasing securities, but at a rate that does not increase the size of their balance sheet. As debt matures, they reinvest the principle in new securities to maintain the size of the balance sheet. When the Fed discusses QT right now, they’re talking about reducing these purchases, so the net impact is a smaller balance sheet.
As an aside, it’s possible to get a sense of how much the Fed intends to reduce the size of the balance sheet this year based on Powell’s comments today. He indicated the impact on financial conditions would be roughly equivalent to an extra rate hike. IIRC every $100B is estimated to shift rates by 3bps. At 25bps a hike, the balance sheet reduction would be roughly $800B.
Could you please explain? Isn't that just a way to "enforce" the target rate in auctions to the primary market?
The federal reserves buys bonds / treasures and mortgage backed securities.
It has an effect on long term interest rates and mortgages (keeping the interests low).