US Federal Reserve: Quantitative tightening and its implications

The US Federal Reserve (Fed) balance sheet is approaching USD9 trillion in size, equivalent to 36% of US GDP. The FOMC, the Fed’s monetary policy committee, has signalled that it will soon embark on ‘balance sheet normalisation’, starting with the end of large-scale asset purchases (quantitative easing or ‘QE’) in March and then reducing the size of the balance sheet.