(Yicai Global) Sept. 21 -- The cumulative effect of the Federal Reserve's planned passive balance sheet shrinking is approximately equal to three interest rate hikes, ICBC International Holdings Ltd. Chief Economist Cheng Shi and Senior Economist Qian Zhijun said in research report released today.

The Federal Reserve said that the contraction will begin next month as scheduled. The reduction plan will last until 2023, cutting the size of relevant assets and securities to roughly 60 percent of their current scale.

The details of the scheme indicate that a significant policy turning point is set for 2019. From the second half of 2019, the Federal Reserve may start the "Smart Sell" operation, using the vacant quota of passive balance sheet cuts to take the initiative to sell long-term debt and mortgage-backed securities to correct the yield curve.

The short-term impact of the current reduction is relatively weak, but the long-term ones will likely be significant. If Smart Sell is rolled out as scheduled, it will further speed up the release of strong long-term effects, and investors' appetite for risk may suffer sustained shocks, leading to a large-scale valuation adjustment of American stocks and other assets.

Smart Sell may gradually breed natural interest rates lower than real interest rates as well as monetary policy contractions, creating challenges for the US's economic recovery, Cheng and Qian said.