TechFlow news, October 30: The Federal Reserve's FOMC statement mentioned that starting December 1, it will "roll over" all maturing U.S. Treasury principal payments. This refers to the Fed's balance sheet operation mechanism, meaning that from December 1, when U.S. Treasuries held by the Fed mature, instead of withdrawing cash (reducing its bond holdings), the Fed will reinvest those funds into new U.S. Treasuries—effectively extending holding periods and maintaining asset size unchanged, i.e., ending balance sheet reduction. The Fed holds a large amount of U.S. Treasuries on its balance sheet; when these securities mature, the Fed receives back the principal in cash. At this point, it has two options: ① not roll over (no reinvestment), meaning taking back cash upon maturity without buying new bonds, which reduces bond holdings—this is balance sheet contraction; ② roll over (reinvest), meaning purchasing new Treasuries of equal value upon maturity, thus keeping bond holdings stable—this means stopping balance sheet reduction. Halting balance sheet reduction is typically seen as a signal that monetary policy is shifting toward easing or at least ending a tightening cycle. (Jinshi)
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