Additionally, the FOMC is likely to begin reducing its balance sheet “considerably more rapidly than in the previous recovery,” as Federal Reserve Governor Lael Brainard stated in a speech on April 5, 2022.
During the IMF panel discussion, Powell insisted that “getting inflation back to the 2% goal” is a critical policy imperative right now.
According to the minutes of the last FOMC meeting, which was held on March 15-16, 2022, members generally favored setting the initial rate of balance sheet reduction at roughly double that rate, or about $95 billion per month.
Indeed, all the options presented by Federal Reserve staff for balance sheet reduction at that meeting involved a more rapid balance sheet “runoff” than what was implemented in 2017-19.
As points of reference, the size of the Fed’s balance sheet was a record $8.9 trillion as of the week starting April 25, 2022.
At its meeting on March 15-16, 2022, the FOMC voted to raise the target range of the federal funds rate by 25 bp, from 0-25 bp to 25-50 bp.