What you're not hearing about the Fed's aggressive balance sheet normalization plan

The March FOMC minutes made it all but certain that balance sheet run-off will begin after the May meeting, with Treasuries capped at $60 billion per month shrinkage and MBS at $35, almost twice the values in place in the 2017-2019 normalization episode. Brainard previewed the announcement the day before, emerging as a must-watch spokesman for major policy changes. Funded entirely by the banking system through reserves and reverse repos, there is a perfect sinking fund that will enable the banking sector to buy Treasuries and MBS that the Fed doesn't. But normalization is not risk neutral, because whatever the banking system does with returned reserves and RRP, it will be more risky. But the asset run-off, even with much higher monthly caps, represents a much smaller share of the Fed's total assets. So taken in the context of the total size of the system today, normalization will actually be at a slower pace than last time.