Fed’s Quarles appropriate to keep B/S big enough to buffer reserve shocks

Education

Speaking on a panel at a NY forum

In his prepared remarks, Feds Quarles says:

  • It is appropriate to keep the balance sheet big enough to buffer against most shocks to reserve supply
  • On  the few days when buffers exhausted, Fed could do open market operations to boost reserve supply
  • Uncertainty around level reserve demand means caution is warranted
  • Fed has discussed ending balance sheet runoff in later half of this year
  • one option at that point would be to hold level of total assets fixed for a time
  • he favors and all treasuries Fed balance sheet, reducing MBS to zero
  • shortening duration may improve control online rates
  • Don’t  expect MBS  sales during balance sheet normalization
  • Back balance sheet  big enough to avoid frequent intervention

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