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Fed: It is important to continue reducing the size of the balance sheet to achieve ample reserves as soon as possible – Michelle Bowman

The Governor of the Federal Reserve (Fed), Michelle Bowmanparticipated in a panel discussion titled “Policy Discussion” at the Bank of Japan (BoJ) – Institute for Monetary and Economic Studies, in Tokyo, on Tuesday.

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I would have supported waiting to slow the pace of the QT or a more gradual slowdown in balance sheet reduction.

'In my view', bank reserves are still nowhere near 'ample' levels given the still considerable use of on-RRP.

It is important to continue reducing the size of the balance sheet to achieve ample reserves as soon as possible and while the economy is strong.

It is important to communicate that any change in the rate of reduction does not reflect a change in the Fed's monetary policy stance.

I 'strongly' support the principle of balance sheet holdings being primarily Treasury bonds.

A long-term balance sheet 'slightly tilted' towards shorter maturities would allow flexibility in approach.

In the future, when the Fed conducts QE to restore market functioning or financial stability, it should communicate that the purchases will be temporary and will be unwound when market conditions have normalized.

The FOMC would have benefited from an earlier decision to taper and end QE in 2021; would have allowed earlier rate hikes.

Source: Fx Street

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