Fed’s Waller suggests balance sheet reduction target of $5.8 trillion

Investing.com -- Federal Reserve Governor Christopher Waller indicated Thursday that the U.S. central bank likely has more work to do in reducing the size of its balance sheet.

Waller suggested that a hypothetical target of $5.8 trillion might be an appropriate level for the Fed’s balance sheet, compared to its current size of $6.7 trillion. Similarly, he proposed that reserves could potentially be reduced to $2.7 trillion from the current $3.3 trillion.

Despite these reduction targets, Waller noted that the Fed’s balance sheet may not need to shrink as much as some market participants expect.

The Fed governor also recommended that the central bank should consider gradually shifting its holdings more toward Treasury bills over time. He emphasized that any such transition should be implemented in a gradual and predictable manner, adding that a shift toward greater bill holdings would likely occur "down the road."

Addressing the composition of the Fed’s current portfolio, Waller stated that the central bank currently holds too many long-maturity assets.

Waller also commented on the Fed’s financial position, noting that losses are a function of the central bank’s asset-buying actions rather than its policy regime.

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