In connection with the FOMC meeting last week, it was stated that the Fed expects to decrease reinvestments of the principal payments received from securities held in SOMA by gradually increasing caps on the dollar amounts of bonds that will be allowed to run off each month and only reinvest the amounts that exceeded the caps each month.
We still do not expect quantitative tightening to have a major impact on Treasury yields like the taper tantrum in 2013. Fed will still have a significant reinvestment need in 2018, but there is a risk that quantitative tightening could lead to an unwarranted tightening of financial conditions.
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