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1 1 (November 4, 2021)

handle is hein.crs/goveetl0001 and id is 1 raw text is: Congressional a Research Service inforring the legisiative debate since 1914 Federal Reserve: Tapering of Asset Purchases November 4, 2021 On November 3, 2021, the Federal Reserve (Fed) announced that it would begin to taper its large-scale asset purchases, popularly known as quantitative easing (QE). It announced it would reduce these asset purchases by $15 billion per month to $70 billion of Treasury securities and $35 billion of agency mortgage-backed securities (MBS) in November. If that pace is maintained, purchases would end in June 2022. Under tapering, the Fed's balance sheet will continue to grow but more slowly. Tapering is the first step in the eventual normalization of monetary policy from the highly stimulative policies in response to COVID-19, which included asset purchases. This Insight discusses why the Fed has purchased assets and what tapering might mean for future monetary policy. History of Asset Purchases QE was first used in three rounds between 2008 and 2012 in response to the financial crisis when the Fed purchased Treasury securities, MBS, and agency debt. Tapering was first used in 2013 to wind down QE3, and the surprise caused Treasury yields to rise and financial volatility in emerging markets (popularly called the taper tantrum). The Fed holds securities it buys as assets on its balance sheet and has financed its purchases by expanding its liabilities by an equal amount. Securities held by the Fed increased from $0.8 trillion before the financial crisis to $4.2 trillion by the end of 2014, as seen in Figure 1. Bank reserves held at the Fed are the primary liability that has increased over this period. While the Fed has not literally printed money to finance these purchases, increasing bank reserves has a similar effect, as bank reserves are part of the monetary base. Bank reserves have increased from $40 billion at the beginning of 2008 to $4.1 trillion at present. Congressional Research Service https://crsreports.congress.gov IN11792 CRS INSIGHT Prepared for Members and Committees of Congress

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