MNI BRIEF: Fed Could Start Runoff Earlier Next Summer - Waller

Federal Reserve Governor Christopher Waller said Friday the central bank could start running off assets from its balance sheet by early summer, potentially only one or two meetings after it lifts its short-term interest rate from zero.

"If we start doing some balance sheet run off by summer, that will take some more pressure off, you don't have to raise rates quite as much. I think that's one thing everybody needs to take into account. If we start doing balance sheet runoff earlier than before, that is also some monetary tightening," he said, waving off the potential to begin runoff at the same meeting as raising rates.

The Fed's balance sheet is currently near 35% of GDP, he said, and "so we can't wait to grow our way into the balance sheet. That'll take too long. So we do we have to take some actions to shrink - I would think a target of something like 20% would be a reasonable benchmark to head to [but] you may not get all the way there, you might think 20 to 23% is okay." In the online event, Waller said he'd prefer to see the reinvestment of MBS back into short-term Treasuries while short-term Treasuries can be run off quickly, citing around USD1.5 trillion in daily overnight reverse repo usage showing the market has no need for the reserves.