CHART OF THE DAY: The Fed hits milestone after knocking $1 trillion in bonds off of its balance sheet

• The Federal Reserve's campaign to reduce its balance sheet hit the $1 trillion mark last week.
• The Fed has been rolling off $100 billion in Treasury and mortgage bonds each month since last year.
• Despite the progress, the Fed's total assets are still $3.78 trillion above pre-pandemic levels.

The Federal Reserve reached a major milestone last week after the campaign to reduce the total assets held on its balance sheet hit the $1 trillion mark.

The Fed now has total assets of $7.96 trillion, below its peak of $8.97 trillion reached in early 2022.

In its bid to tame inflation, the Fed launched a balance sheet reduction program in tandem with its ongoing interest rate hikes.

Under so-called quantitative tightening, the Fed has not been reinvesting the proceeds of Treasury and mortgage bonds that mature, to the tune of nearly $100 billion per month.

Despite the recent progress, the Fed has a long way to go. It's balance sheet is still $3.78 trillion above its pre-pandemic levels of about $4.2 trillion.

The explosion in assets held by the Fed came as the central bank made emergency purchases of Treasury, corporate, and mortgage bonds during the first few months of the pandemic in its bid to help keep credit markets open amid a heightened period of uncertainty.

Roberto Perli, who is the Fed's manager of the System Open Market Account, recently suggested that the central bank's balance sheet reduction will continue for the foreseeable future.

"Our implementation framework has confronted a number of stress tests and performed quite well. This is all encouraging, but we remain cognizant of the risks and uncertainties ahead," he said on Tuesday, adding that the Fed's balance sheet runoff program is running smooth with "no significant" market disruptions.

Perli added that the Fed plans to "slow and then stop" offloading bonds from its balance sheet once the level of reserves in the banking system is "somewhat above" levels the Fed considers "ample."

"We know that the transition from abundant to ample will occur at some point, but we don't know when. For now, that moment does not seem to be on the horizon," he said.