Governor Christopher J. Waller has reiterated his support for a gradual pace of balance sheet reduction by the Federal Reserve, stating that the current decline in securities holdings is necessary to normalize monetary policy and reduce unneeded reserves.
Waller prefers to continue with the current pace of decline, citing the need to maintain an ample level of reserves. However, he notes that reserve balances currently stand at over $3 trillion, which he considers abundant.
The Governor emphasized that slowing down or stopping redemptions entirely would not be necessary at this stage, as there is no evidence from money market indicators or his outreach conversations suggesting the banking system is approaching an ample level of reserves.
Waller acknowledged that the Federal Reserve has various tools to address unanticipated disturbances to reserve demand. Instead of altering the pace of balance sheet reduction, he advocates for developing a contingency plan to swiftly respond to short-run strains if they emerge.
This approach prioritizes good process and planning, which ultimately helps achieve the FOMC’s economic objectives while minimizing disruptions to markets and the committee’s efforts.
Source: https://www.federalreserve.gov/newsevents/speech/waller20250321a.htm