This has been accomplished without any evidence of market disruption or volatile price movements; it has been, as former Chair Janet Yellen once said, like “watching paint dry.” 12 The charts in Figure 4 also show the projected progression of the portfolio for the rest of the year. Runoff from the balance sheet increases over the projection horizon, as the caps attain their terminal value later this year. As had been expected at the start of the program, principal repayments from our agency MBS portfolio are projected to eventually start coming in below the level of the caps. Based on current projections, principal payments on the Federal Reserve’s holdings of agency MBS would likely be lower than the monthly cap on redemptions that will be in effect beginning in the fall of this year. Consistent with the Policy Normalization Principles and Plans, when this occurs in a given month, no reinvestment occurs, and the portfolio size declines by the amount of principal repayment. It is important to remember that mortgage principal repayments are uncertain; are sensitive to various factors, particularly long-term interest rates; and could conceivably rise above the level of the cap in the future, particularly if interest rates were to decline. If this were to occur, those amounts above the cap would be reinvested. The cap-based program to normalize the balance sheet was designed at the start to operate exactly in this way: it is the mechanism by which the decline in the balance sheet is kept to a gradual and predictable pace.
“Confidence in the Implementation of U.S. Monetary Policy Normalization” Remarks by Simon M. Potter Executive Vice President Federal Reserve Bank of New York at the 23rd EMEAP (Executives’ Meeting of East Asia-Pacific Central Banks) Governors’ Meeting Manila, Philippines August 4, 2018  Thank you for the invitation to participate in today’s discussion about globalization and its effect on monetary policy in emerging market economies. 1 U.S. financial markets, and the U.S. monetary policy stance, can significantly influence global financial conditions and capital flows. 2 In no small part, this reflects the extensive use of the dollar in international trade and in financial transactions conducted outside the United States. The pricing and availability of financing for business activity around the world—even activity that does not directly relate to an American borrower, lender, producer, or consumer—often are influenced by conditions in U.S.-dollar money markets. And, understandably, the evolution and stability of dollar funding markets are a focus of attention for many economic policymakers around the world, especially here in the East Asia-Pacific region. As always, the views I will express today are mine alone and do not necessarily reflect those of the New York Fed or the Federal Reserve System. My remarks today will focus on the implementation of monetary policy normalization in the United States and its contribution toward maintaining stability in U.S.-dollar money markets. I will start by reviewing progress on the Federal Open Market Committee (FOMC)’s program to normalize the stance of monetary policy.