Recently released minutes from the March Fed meeting show a split in the timing and impact of the move.

By way of review The Federal Reserve’s balance sheet exploded from $1 billion to $4.5 billion in the wake of the credit crisis. The Obama administration’s largesse exploded annual budget deficits. The financier was the Fed which soaked up most of the new Treasury issues.

Oversupply of debt pushed down interest rates which theoretically supported economic activity. Realistically the artificially low rates incentivized financial engineering such as debt-fueled corporate stock buybacks.

With excitement over the Trump administration (i.e. expected tax reform and infrastructure spending) the economy is gaining steam. The Fed has decided it’s time to stop playing wet nurse to it and start winding down its balance sheet.

The explosion in the size of the Fed’s balance sheet is historic and unprecedented. That’s not hyperbole. Therefore anyone claiming to know the impact of the Fed’s shrinking balance sheet is at best guessing and at worst intellectually dishonest.

An educated guess suggests shrinking supply relative to unchanged demand should push up interest rates – a risk to the economy of which the Fed is fully aware. To stem the tide Fed officials are split over decreasing the pace of bond reinvestment or stopping it altogether.

What they decide will go a long way in determining mortgage rates, rates corporations pay when issuing debt, rates paid on savings accounts, etc. Will they rise? If so how quickly? By how much?

Stay tuned – it’s gonna be fun to watch.