Federal Reserve's balance sheet may see $2.5T overall reduction, Fed's Harker says

Douglas Rissing

Philadelphia Fed President Patrick Harker’s “best guess” for how much the Federal Reserve’s $8.67T balance sheet will decrease overall is $2.5T, he answered a question Tuesday after delivering a prepared speech at the LeBow College of Business at Drexel University.

Note that the U.S. central bank, as part of its efforts to tighten monetary policy to bring inflation down to its target, is currently shedding $60B in Treasuries and $35B of agency debt and mortgage-backed securities every month. The balance sheet peaked at $8.96T in April.

And as monetary policy approaches a “sufficiently restrictive” level, Harker reiterated that he expects the Fed to slow the pace of interest-rate hikes. It’s possible that “we may pause as we are continually working to reduce inflation,” he said.

When asked about the troubles brewing across the cryptocurrency ecosystem, triggered by the collapse of crypto exchange FTX, Harker stressed that “we really need Congress to opine on regulation of crypto finance,” adding “crypto finance is not at this point a threat to wider financial stability.”

Previously, (Nov. 10) Harker sees rate-hike pace slowing in coming months.

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