NEW YORK/SAN FRANCISCO (Reuters) – As the Federal Reserve prepares to stop trimming its $4 trillion balance sheet later this year, two U.S. central bankers suggested the Fed may need to carefully feel its way on how big its bond portfolio needs to be to maintain smoothly operating financial markets.
In minutes of its January policy-setting meeting released earlier this week, the Fed surprised markets by saying it had discussed ending a reduction of its balance sheet later this year.
Fed - Balance - Sheet - Years - Bond-buying
Doing so would leave the Fed’s balance sheet, swollen from years of bond-buying in the post-crisis years, much bigger than had earlier been anticipated.
On Friday, Fed policymakers said that one reason a bigger Fed balance sheet is necessary is that banks are relying on a much bigger pool of reserves held at the Fed than they did in the pre-crisis years. Because it is not clear exactly how much the banks...
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