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By Jean Yung
     WASHINGTON (MNI) - Federal Reserve Bank of San Francisco President Mary
Daly said Friday the Fed is prepared to taper the pace at which it is shrinking
its balance sheet if conditions warrant. 
     "We are prepared to change the size of our balance sheet or the pace at
which we slow it to or drain it down to just enough (reserves) to be ample
depending on financial and economic conditions," she told a forum in San
     The FOMC is still debating the end point for balance sheet normalization,
as well as the ultimate composition of the Fed's asset holdings, she said. 
     The Fed can "move the balance sheet up and down depending on whether we
need to ease financial conditions more than our interest rate alone will allow
us to," she said. 
     "It's still a very open debate about whether we will use that as a regular
tool or whether we will use it as an emergency tool," she added, but didn't
     The Fed's revised guidance on balance sheet normalization in January is
meant to convey that officials understand the balance sheet has an impact on the
economy. "We're paying as much attention to that as we are to the interest
rate," but the interest rate "remains our primary tool for executing monetary
--MNI Washington Bureau; +1 202-371-2121; email: