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Fed should let its balance sheet shrink over next couple of years

by Mike Robinson

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© Reuters. FILE PHOTO – The Federal Reserve Board Building on Constitution Avenue in Washington, U.S.A, is shown in Washington, U.S.A, February 27, 2019. REUTERS/Brendan McDermid/File Photo

(Reuters) – Over the next two years, the U.S. Federal Reserve must reduce its balance sheet of $8 trillion to meet inflationary pressures. This was said by Fed Governor Christopher Waller on Thursday.

Waller spoke at the Virtual Event hosted by the Official Monetary and Financial Institutions Forum.

He said that the remaining fraction of this could be run-off over the next few years, without any problems.

Waller repeated his earlier statements about inflation throughout the week, where he indicated that if price rises continue at current rates in the coming months instead of subsiding as anticipated, Fed interest-rate setting officials may have to “adopt a more aggressive policy response next year.”

As it begins to move away from the crisis-era policies that were put in place in order to protect the U.S. economic system during the COVID-19 epidemic, the Fed will likely begin to reduce its monthly asset purchases of $120 billion as early as next month.

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