FXStreet (Delhi) – Research Team at Goldman Sachs, notes that in its statement following its December meeting, the FOMC said that it expects to continue fully reinvesting its securities portfolio “until normalization of the level of the federal funds rate is well under way”. Key Quotes “While the statement did not quantify what this means, the minutes of the September FOMC meeting reported that staff economists presented simulations in which reinvestment continued “until certain levels of the federal funds rate, such as 1% or 2%, were reached”. Separately, New York Fed President Dudley said in June that he would like “to get short-term rates to a reasonable level so … that I was off the zero lower bound by a reasonable amount … if it’s 1% or 1.5%, I haven’t really reached any definitive conclusion.” We take the FOMC’s current guidance to mean that reinvestment is unlikely to end until late-2016 at the earliest, and our own forecast is that it will continue until mid-2017. Disappointing economic outcomes and a slower pace of rate hikes would push out the timeline for balance sheet normalization even later. Based on the current makeup of the balance sheet, full reinvestment would require Treasury purchases at auction of $18bn per month in 2016. Maturities are not evenly spaced throughout the year, however, with just $2bn coming due in January but $37bn in February. Our mortgage strategists currently estimate that full reinvestment of the Fed’s MBS portfolio will require purchases of $20-25bn per month.” For more information, read our latest forex news.