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The financial media have reported that...

In general, Fed officials appear to have converged to a minimum balance sheet of roughly $3.5 trillion, which means the runoff would end in the second half of the year Link

and it was also reported to come specifically from Chair Powell...

the chairman has said that the reduction in its bond holdings will end soon, with a balance sheet probably no lower than around $3.5 trillion Link

The level of 3.5 T USD will be arrived at, at the rate of 50 B USD per month as described here at this link.

How was the target level of 3.5 T USD determined?

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  • $\begingroup$ If you are looking for a specific formula, I think you will be disappointed. I suspect we’ll only really know after whatever the delay is before Fed minutes and/or briefing materials become public. Decisions like this tend to be qualitative with quantitative inputs. $\endgroup$ Mar 20, 2019 at 2:33
  • $\begingroup$ @dismalscience Nobody would ever say they are equally content with 3T and 3.5T and 4T. If they said 3.5T there is a reason. $\endgroup$
    – H2ONaCl
    Mar 20, 2019 at 2:56
  • $\begingroup$ Again, I think you would be surprised at the degree to which figures like that are the result of an amalgamation of partial models. They’re presumably trying to, while keeping broad short rates within a certain range, move toward a corridor system, while t-bill supply (which competes with deposits) increases and nettable interbank repo market volume increases and custodial bank balance sheet is less encumbered than in the past due to a recent law. I don’t know of a model that anyone would trust that could take those inputs and spit out a precise numeric result. $\endgroup$ Mar 20, 2019 at 3:05
  • $\begingroup$ @dismalscience Since nobody expects precision, what you wrote is not an excuse for failing to calculate an approximate result. $\endgroup$
    – H2ONaCl
    Mar 20, 2019 at 3:13
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    $\begingroup$ As I also said before, you’ll get to see the reasoning in about five years, when the transcripts and teal books become public. $\endgroup$ Mar 20, 2019 at 3:19

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