Fed Governor Miran Advocates $1-2T Balance Sheet Cut

Federal Reserve Governor Stephen Miran stated Thursday that reducing the central bank's balance sheet remains a desirable goal, arguing it would enhance monetary policy flexibility and minimize market distortions. Speaking at the Economic Club of Miami, Miran outlined a potential path to shrink the Fed's holdings by 1 trillion to 2 trillion dollars over several years, without resorting to outright sales of assets.

Miran emphasized that the current balance sheet, which stands at about 6.7 trillion dollars, creates challenges for the Fed by distorting financial markets and limiting options during future crises. "Shrinking the size of the balance sheet is desirable," he said, adding that skeptics who believe it cannot happen "simply lack imagination." He proposed measures to lower banks' demand for reserves, including easing liquidity regulations such as the liquidity coverage ratio, adjusting stress tests, and destigmatizing access to Fed facilities like standing repo operations and the discount window. More frequent interventions by the Fed to manage market liquidity could also facilitate the process, he noted.

The governor stressed a gradual approach, allowing securities to...