Cleveland Fed President Loretta Mester said she would like the central bank to shrink its balance sheet quickly so that it comes down to a “more reasonable size” as long as the pace doesn’t negatively impact financial markets.
Cleveland Fed President Loretta Mester on Wednesday said she would like the central bank to shrink its balance sheet quickly so that it comes down to a “more reasonable size” as long as the pace doesn’t negatively impact financial markets.
Financial markets are watching the debate on the balance sheet closely. Trader after trader have appeared on the cable business networks since 2020 saying the Fed’s asset purchases, sometimes called quantitative easing, has bolstered financial asset valuations. And so there is a sense that the reverse might also be true.
On Tuesday, Kansas City Fed President Esther George, who is also a voting FOMC member this year, backed a fast pace of shrinking the balance sheet.The Fed shrank its balance sheet in 2017 by allowing a portion of its maturing securities to roll off the balance sheet each month. It did not sell any of its portfolio holdings.
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