If The Fed "Shrink" The Global Yield Will Change Dramatically.

At the beginning of the new year, the Fed officials were basically consistent in anticipation of the gradual increase in interest rates, reflecting the return to normal monetary policy under the stable economic situation.

In the past few years, there has been a heated debate over the unconventional tools used by the Federal Reserve during and after the recession.

Recently, the Fed's collective discussion of "shrinking the scale" has also attracted wide attention in the market, and everyone is going to normalize the balance sheet in the Guan Xinmei fed.

In the past week, five of the 12 Federal Reserve Bank Governors of the Federal Reserve are expected to raise interest rates 2-4 times this year, 0.25 percentage points each time, and the vast majority believe that they may raise interest rates three times.

This is consistent with what the Federal Reserve announced last month, reflecting the following consensus: the US economy is recovering, the unemployment rate is low, the economy is growing moderately and inflation is rising.

Not long ago,

The focus of the debate among the senior officials is how fast the Fed will raise interest rates. Now, when the wind is changing, they suddenly begin to discuss collective measures.

The Federal Reserve raised interest rates to 0.5%-0.75% in December 14th, raising interest rates for the first time in a year.

The median estimate suggests that three more interest rates may be added in 2017, 25 basis points per time.

At the same time, the Fed said it would continue to implement the balance sheet reinvestment policy until it fully entered the interest rate track.

In order to protect the US economy from the most serious impact of the 2008-2009 year financial crisis, the Fed implemented three rounds of large-scale debt purchase.

The scale expanded by more than three times to 4 trillion and 500 billion US dollars.

At that time, members of the US Congress criticized the measures aimed at lowering the cost of borrowing to stimulate recruitment and investment in enterprises. When the withdrawal of these policies began, it became a problem for policymakers.

According to Peng Bo, three regional Fed governors believe that the Fed should start discussing how to reduce the scale of the expanded balance sheet this year.

They are increasing pressure to discuss when to lift the measures taken during the extraordinary period, while the Fed tends to postpone discussions.

Saint Louis Fed President James Bullard told the audience in New York on Thursday, "since it has been raised.

The Federal Open Market Committee is also more mature in considering the end of reinvestment or reducing the scale of its balance sheet. Adjusting the balance sheet policy may be seen as a way to normalize the Fed's policy, so that people no longer pay attention to the rise of the policy interest rate path.

The Philadelphia fed governor Patrick Harker ended a campaign in Malvern, Pennsylvania, telling reporters that when the federal funds rate rose to 1%, Federal Reserve officials could begin to consider whether or not to reduce the balance sheet.

"The first step is to stop reinvesting," he said.

"We should begin to discuss how to shrink the balance sheet in 2017," said Dallas Fed President Robert Kaplan, told reporters on Thursday. "We hope that there will be more progress in raising interest rates and the assessment of balance sheets is also true," he said after giving a performance in Dallas.

The Fed's collective discussion of "shrinking" has caused widespread concern in the market, and everyone is concerned about the extent to which the Fed will normalize its balance sheet.

If the Fed shrinks, the global yield will change dramatically, possibly even more than the Federal Reserve's QE scare in 2013, and the bond market may fall again.

There is a view that the Fed officials discuss the "shrink table" in a collective discussion, and intend to make a haircut ahead of time, so that the market can prepare well for the psychological preparation of the Federal Reserve to gradually shrink its balance sheet in the future.

Whether the Fed officials are intentional or unintentional, we have no idea.

However, the market has begun to react, just before the Fed officials discussed the "shrinking schedule" yesterday, the 30 year US bond yields jumped about 3 basis points with the short-term spreads between the two years.

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