Wednesday, Oct 22, 2014Wednesday, Oct 22, 2014
Business
 

Fed's Williams 'gun shy' on shrinking balance sheet: WSJ

Published on May 22, 2014 5:28 AM
 
The Federal Reserve should defer any decision to allow its balance sheet to shrink until after it has begun raising interest rates from their current near-zero level, San Francisco Fed President John Williams told the Wall Street Journal on Wednesday. -- PHOTO: BLOOMBERG

(REUTERS) - The Federal Reserve should defer any decision to allow its balance sheet to shrink until after it has begun raising interest rates from their current near-zero level, San Francisco Fed President John Williams told the Wall Street Journal on Wednesday.

Williams' comments follow similar remarks by the influential head of the New York Fed, William Dudley. Together, the remarks are a strong signal the US central bank is inclined to keep its US$4-trillion (S$5 trillion) balance sheet large for longer in order to minimise the risk of roiling markets.

The Fed currently reinvests proceeds from maturing Treasuries back into its portfolio, and for years had said it would start normalising rates by ending those reinvestments in a step that would precede its first rate hikes.

Williams, like Dudley, said he worries that stopping reinvestments could disrupt markets, presumably by setting off a run-up in market rates that the Fed would view as undesirable.

 
If you are not a subscriber, you can get instant, unlimited access here

Videos