MNI: Fed Waller Prefers Faster QT Path, Wants Contingency Plan
MNI (WASHINGTON) - Federal Reserve Governor Chris Waller said Friday reserves in the banking system are abundant and he would have preferred the central bank keep rolling off USD25 billion of Treasuries per month, but he believes the Fed should develop a plan for how to respond to short-run strains if they emerge.
"Reducing the Federal Reserve’s balance sheet is an important part of normalizing monetary policy implementation and reducing unneeded reserves in the banking system," he said in a statement. "Slowing further or stopping redemptions of securities holdings will be appropriate as we get closer to an ample level of reserves. But in my view we are not there yet because reserve balances stand at over USD3 trillion and this level is abundant."
His statement did not touch on the economic outlook and the stance of monetary policy.
NOT CLOSE TO AMPLE
"There is no evidence from money market indicators or my outreach conversations that the banking system is getting close to an ample level of reserves," Waller said. The prior pace of redemptions established in June 2024 that rolled off USD25 billion in Treasuries and USD35 billion in agency debt and agency mortgage-backed securities continues to be "the right one."
The Fed earlier this week reduced the monthly redemption cap on Treasury securities from USD25 billion to USD5 billion beginning in April. Waller dissented against the move.
If unanticipated disturbances to reserve demand emerge on the path to balance sheet normalization, the "Federal Reserve System has a variety of tools to address such a development," Waller said.
Waller advocated that the Fed develop a plan for how to respond to money market strains if they emerge.
"Such a plan could be implemented swiftly in the event more reserves need to be injected into the banking system," the Fed governor said. "Even with the decision to slow the pace of runoff at this meeting, a plan is still required should a disturbance occur in the future. While this is a procedural matter, good process leads to good outcomes, and good contingency planning helps avoid disruptions to markets and to the FOMC’s efforts to achieve our economic objectives."