From The New York Times, 19 September 2017, by Binyamin Appelbaum, and Gold, Stocks and Forex, 23 September 2017, by Colin Twiggs:

WASHINGTON — The Federal Reserve, which invested trillions of dollars to prop up the American economy after the 2008 financial crisis, is finally ready to take away the crutches.

The Fed …will gradually reduce its $4.2 trillion portfolio of United States Treasury debt and mortgage-backed securities, a move that would amount to a vote of confidence that the economy’s slow-but-steady growth is likely to continue.

Fed assets

Fed total assets of $4.5 trillion (the red line on the above chart) does not give the full picture. Of the cash injected into the economy, $2.2 trillion found its way back to the Fed by way of excess reserves deposited by banks (the blue line).  … the net effect of the balance sheet expansion is the difference between the two lines, or $2.3 trillion.

Even $2.3 trillion is a big number and any meaningful sale of securities by the Fed would contract the supply of money, tipping the economy into recession. So …the Fed does not intend to sell securities. It will simply decrease the “reinvestment of principal repayments it receives from securities held” according to its June 2017 detailed schedule …The amount withheld from reinvestment will commence at $10 billion per month ($6bn US Treasuries and $4bn MBS) and step up by $10 billion each quarter until it reaches a total of $50 billion per quarter.

That means that $100 billion will be withheld in the first year and $200 billion in each year thereafter….”so that the Federal Reserve’s securities holdings will continue to decline in a gradual and predictable manner until the Committee judges that the Federal Reserve is holding no more securities than necessary to implement monetary policy efficiently and effectively.”

…This is bound to take some of the heat out of the stock market. The plus side is it may restore some sanity to market valuations, but any sudden moves could cause an overreaction…