Governor Brainard Anticipates Rapid Reduction of Fed Holdings

On April 5, Federal Reserve Governor Lael Brainard said that the Fed will begin shrinking its portfolio, now standing at $9 trillion, more rapidly than in the previous recovery (2017-2019). Worries of recession or stagflation—including Russia’s invasion of Ukraine impacting gas and food prices and China’s recent COVID lockdowns impacting supply chains—have been countered by references to unemployment at 3.6%, non-managerial employees’ incomes rising by 6.7% from 2021, and US net oil exports buffering the economic impact of energy prices compared to the 1970s. After Governor Brainard’s comments, investors responded with concern, sending stocks down and Treasury yields up, despite Fed Chair Jerome Powell’s comments that he still believes “the Fed can manage a soft landing.” Read more.