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The Range Of Member Views On Balance Sheet Runoff

FED
  • “Almost all” thought it appropriate to initiate b/s runoff at some point after the first hike. Appropriate for timing of b/s runoff to be closer to rate liftoff than in the past (stronger economic outlook, higher inflation and larger balance sheet). They emphasized that the decision to initiate runoff would be data dependent.
  • “Some” participants noted that it could be appropriate to begin to reduce the balance sheet relatively soon after beginning to raise the federal funds rate.
  • “Many” participants thought the appropriate runoff pace would be faster than it was during the previous normalization episode. Many participants also judged that monthly caps on the runoff of securities could help ensure that the pace would be measured and predictable, particularly given the shorter weighted average maturity of the Federal Reserve’s Treasury security holdings.
  • “Some participants commented that removing policy accommodation by relying more on balance sheet reduction and less on increases in the policy rate could help limit yield curve flattening during policy normalization”.
  • “A few of these participants” raised concerns that a relatively flat yield curve could adversely affect interest margins for some financial intermediaries, which may raise financial stability risks. However, a couple of other participants referenced staff analysis and previous experience in noting that many factors can affect longer-dated yields, making it difficult to judge how a different policy mix would affect the shape of the yield curve.”
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