This year’s FOMC vote committee, known as the “Eagle Queen”, Kansas Federal Reserve Bank President Esther George (Esther George) advocated on Tuesday (11th) that the time for monetary policy normalization has come, and the Fed should reduce the nearly 8.8 trillion yuan as soon as possible.Dollarbalance sheet.
U.S. inflation is near a 40-year high, demand is strong, the labor market is noticeably tight, and the Federal Reserve’s current very loose monetary policy is out of sync with the economic outlook, Kansas Federal Reserve Bank President George said on Tuesday.
George said the U.S. is recovering from another sharp recession and the Fed should shrink its balance sheet faster than in similar moments in the past. It would be more effective to reduce inflation if the Fed would reduce its holdings of long-term bonds while gradually raising interest rates.
“Overall, I think it’s appropriate to move early on the balance sheet relative to the last tightening cycle,” said George, who did not specify the exact timing of the contraction.
The last Fed balance sheet reduction period began in October 2007, at $10 billion per monthDollarThe pace of reducing the size of the balance sheet has been rather slow.Under the excessive easing in the past two years, the Fed’s balance sheet has grown from 4.1 trillionDollarmore than doubled to 8.77 trillionDollar。
George warned that if the Fed raises interest rates but shrinks its balance sheet slowly, the U.S. Treasury yield curve could flatten or even invert and encourage excessive risk-taking in financial markets.
Yields on short-term U.S. Treasuries exceed those on long-term Treasuries, a condition known as an “inversion” (also known as an inversion) of the yield curve. An inverted yield curve has been a reliable predictor of a recession, and while it doesn’t mean one is imminent, it could be in the next one to two years.
On the same day, Atlanta Federal Reserve Bank President Raphael Bostic expressed his support for starting the process of shrinking the balance sheet “as soon as possible” after the interest rate hike in March 2018 to control the rising inflation. Federal Reserve Chairman Paul Powell told the Senate Banking Committee nomination confirmation hearing that he expected inflationary pressures to continue through the middle of the year and balance sheet reductions to begin “later this year.”