There's no apparent need in cutting the portfolio. It will decrease naturally as bonds mature.
If there's a need in soaking up the excessive liquidity they have a range of other instruments, namely repos and manipulating rates on excess reserves.
The fed would need to reinvest the proceeds of matured bonds into new bonds or else liquidity would dry up.
When US treasury bonds mature the treasury must issue more bonds to repay the bonds that are maturing. If the Fed does not buy some of those bonds then the effect would be the same as if it had sold the bonds in the open market.
Liquidity is abundant, nobody knows what to do with it (just look at excess reserves).
Yes, effect for a state as a whole this would be the same. But thr Fed would not incur any direct losses, the Treasury would bear the burden instead.
What I am saying is that if the treasury sells bonds that are not purchased by the fed then they will need to be purchased by banks. If banks buy these bonds then they will have less money to lend to other banks, corporations, small businesses, people and the like
Banks don't lend money they have, they create new money out of thin air instead. And their reserve position doesn't matter when bank makes a decision whether to lend or not.
Trying to find an explanation post factum.
