Mester's Comments Nod To Outright Asset Sales "At Some Point"

Cleveland Fed Pres Mester in a speech today (link to our Policy Team's summary) pointed to the potential for outright Fed asset sales ahead, as part of the process of shrinking the balance sheet:

• "While our principles state that we will reduce balance-sheet assets primarily by adjusting the reinvestment amounts of the principal payments we receive on our assets, I would support selling some of our mortgage-backed securities at some point during the reduction period to speed the conversion of our portfolio’s composition to primarily Treasuries."
• Mester's filled in the blanks of the "principles for balance sheet reduction" released last month, in that if passive runoff is the "primary" way by which shrinkage is achieved, then it stands to reason the unmentioned "secondary" way is via outright sales.
• While Mester's comments include the massive caveat "at some point", outright MBS sales will surely be part of the conversation at the next two FOMCs in which the balance sheet roadmap will become clearer.