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Comment: Governor Brainard said balance sheet reduction should end in 2019

Fed Governor Lael Brainard hasn’t been heard on the topic of monetary policy for a while.  In an interview on CNBC on Thursday, February 14, she said, “In my view, that balance sheet normalization process should come to an end later this year.”

It is perhaps not surprising that one of the most dovish of Fed policymakers would would be comfortable with ending the taper of holdings of Treasurys and Agency MBS sooner which would mean more higher balances than previously thought. In addition to maintaining “an ample supply of reserves”, “We’ve taken some soundings from the market in terms of what that demand for reserves is, and I’d want to have a substantial buffer on top of that to avoid volatility,” she said.

Brainard is one of the policymakers who view the amount of the Fed’s holdings as supportive of growth, not the purchase thereof.

In any case, while some FOMC participants have indicated that they are in favor of considering easing off the pace of tapering and/or ending it altogether, Brainard is the first to put in in a timeframe and is likely one of those on the earlier side of the spectrum of views.

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