By Michael S. Derby

NEW YORK The Federal Reserve will likely stop the process of shrinking its balance sheet in the third quarter of 2024, according to a survey of large banks released by the Federal Reserve Bank of New York Thursday.

In the bank’s Survey of Primary Dealers, who serve as counterparties to central bank market interventions and underwrite Treasury debt auctions, the Fed will halt the drawdown of its holdings, now at about $8 trillion, when it hits holdings of cash and securities that stand at $6.750 trillion.

The dealers were surveyed ahead of the Sept. 19-20 Federal Open Market Committee meeting. At that gathering officials kept their interest rate target range steady at between 5.25% and 5.5%, while keeping alive the prospect of one more hike this year, with rates staying higher for longer relative to what officials expected at the June FOMC meeting.

Dealers’ projections for the balance sheet outlook come as the Fed since last year has been allowing just shy of $100 billion per month in Treasury and mortgage bonds to mature and not be replaced. The Fed is contracting its holdings to complement its rate rise campaign, and to date, it’s shed about $1 trillion as it seeks to withdraw liquidity from the financial system to bring inflation back to the 2% target.

(Reporting by Michael S. Derby)