The Fed is working to normalize its balance sheet and these comments from Logan and Waller entirely focus on questions about the size of the Fed's balance sheet and composition.

Waller says the current overnight repo usage of about $500 billion "tells me we can continue to reduce our holdings for some time". He said the current Fed quantitative tightening pace is not causing substantial strains in financial markets.


  • Moving to more T-Bills would shift maturity structure closer to policy rate.
  • That would allow income and expenses to rise and fall together as FOMC lifts or cuts target rate.Fed's Waller: Like to see Treasury holdings shift to larger share of shorter-dated securities.
  • That could also assist future QE programs by allowing short-term securities to roll off portfolio and not increase balance sheet overall.
  • Low prepayments have kept MBS reductions to about $15 bln a month, important to see continued reduction.
  • Would like to see agency MBS holdings go to zero.
  • Current Fed QT pace is not causing substantial strains in financial markets.
  • Balance sheet plans are about getting liquidity levels right and approaching 'ample' at the correct speed, not about policy rate.
  • Timing of balance sheet redemptions pace will be independent of any changes to policy rate.
  • SRF may provide a signal for when reserves are getting close to ample.
  • Standing repo facility (SRF) backstop may allow banks to lower level of reserves below what they would be without the SRF.
  • Current overnight repo usage of about $500 bln 'tells me that we can continue to reduce our holdings for some time'.


  • Maintaining significant ongoing on RRP balance as a buffer would come at expense of supplying more than efficient reserve level.
  • That could create unequal liquidity playing field between banks and non banks.
  • Ample reserve level unlikely to eliminate all rate volatility, expect to see some ongoing fluctuation even at ample reserve level.
  • This strategy would mitigate risk of undesired liquidity stress from QT.
  • Slower run off is a way to approach ample point more gradually, allowing banks to redistribute reserves.
  • In this environment, moving more slowly can reduce the risk of an accident that would require us to stop too soon.
  • After on RRP is drained, QT will reduce reserves on 1-for-1 basis, all else equal.
  • Have not seen reduction in reserves yet under current Fed QT.
  • Once on RRP is empty, there will be uncertainty over how much excess liquidity remains.
  • 'Significant' on RRP balances mean we can be confident liquidity is 'more than ample'.
  • That means when overnight reverse repo (ON RRP) balances approach a low level, it will be appropriate to slow pace of asset runoff.
  • Need to 'feel our way to it' by observing money market spreads and volatility.
  • Don't think we can identify 'ample' level of reserves in advance