Fed’s Waller Backs Balance Sheet Runoff, Shift In Composition

Federal Reserve Governor Christopher Waller said the US central bank should continue reducing the size of its balance sheet, including shifting its composition to include more short-term assets, but that it likely doesn’t need to fall too much.

“I believe we can likely continue to let a share of maturing and prepaying securities roll off our balance sheet for some time, reducing reserve balances,” Waller said Thursday in remarks prepared for an event hosted by the Dallas Fed.

Waller, in a speech wholly about the balance sheet, argued that it should shrink, but not by as much as some Fed watchers and economists have suggested.

Bank reserves, which Waller said are currently abundant, or above the “ample” level that the Fed strives for, should ideally be around $2.7 trillion. That, combined with Fed holdings for currency and the US Treasury’s general account balance would put the balance sheet at $5.8 trillion, compared to the current $6.7 trillion.