The “big news” from Janet Yellen’s recent press conference, which was hardly news at all to those who have followed the Fed’s past announcements, was that Fed officials, having long promised to eventually undo much if not all of the vast balance sheet growth brought about by the Fed’s various QE operations, and having delayed paying the piper for as long as pressure from without permitted, are finally about to get started.
But don’t imagine that Fed staff have been idle during the long delay. On the contrary: they spent much of it developing their highly scientific balance-sheet reduction strategy, first revealed back in June. As the Fed doesn’t seem to have given that highly scientific plan a name, I hope I may take the liberty of proposing one. Let’s call it “Operation SNAIL.”
In case you haven’t guessed, the acronym stands for “Stall Now And Inch-along Later.” For if there’s any clear point to the strategy the Fed has chosen, it’s to shrink as slowly as possible — more slowly, even, than it would if it merely allowed maturing assets to passively roll-off its balance sheet.