$ETH #美联储宣布降息50个基点 I read the official press release of the Federal Reserve. The general meaning is that the Federal Reserve is confident that it can control inflation within 2%, and believes that the current risks of inflation and employment are balanced, and the Federal Reserve will continue to shrink its balance sheet. As for the economy, it is still uncertain and needs further observation.

Two key points

Some of the U.S. Treasury bonds held by the Federal Reserve will mature each month. For the principal of these maturing Treasury bonds, the Federal Reserve will roll over by auction, that is, reinvest this part of the principal into new Treasury bonds. But there is an upper limit, that is, only the part exceeding US$25 billion will be reinvested each month. This means that if the principal of Treasury bonds maturing in a certain month exceeds US$25 billion, the excess will be reinvested in the market through auction, and the part below US$25 billion will no longer be invested

If the principal of Treasury coupon securities maturing each month is less than US$25 billion, the Federal Reserve will choose to redeem these Treasury bonds. In addition, the Fed may also redeem some Treasury bills to ensure that the total principal redemption reaches the monthly cap of $25 billion.

The Fed also receives some principal payments from its agency debt and mortgage-backed securities (MBS) every month. If the total principal received exceeds $35 billion, the excess will be reinvested in U.S. Treasury bonds. This means that the Fed will not let this part of the funds flow out of the market, but will continue to invest it in the Treasury market. At the same time, these reinvested Treasury bonds will roughly match the maturity structure of other Treasury bonds in the market, thereby avoiding excessive impact on the market.

Some friends may think that this is flooding, but it may not be for me.

Because in the rollover of Treasury bonds, the Fed reinvests the maturing U.S. Treasury bonds into new Treasury bonds, which is to maintain the original asset size instead of increasing the new fund supply. Therefore, this is not to directly increase market liquidity, but to avoid liquidity from being reduced in the market.

Secondly, reinvesting MBS and agency bonds, the Fed will reinvest the agency debt and MBS principal received in Treasury bonds, which means that it does not recover these funds, but allows them to continue to operate in the market.This operation does not increase the amount of funds in the market, but only maintains the status quo.