In a speech, Federal Reserve Board Governor Stephen I. Miran argued that shrinking the Federal Reserve’s balance sheet is both desirable and achievable, and that substantial reduction could be pursued without necessarily reverting to a scarce-reserves operating framework. He framed the remarks as his own views rather than an official position of the Federal Open Market Committee. Miran set out rationales for a smaller balance sheet, including reducing market distortions, limiting mark-to-market and remittance volatility, and better separating monetary from fiscal policy, while preserving capacity for future zero-lower-bound episodes. He pointed to a working paper outlining options that could lower the effective boundary between “scarce,” “ample,” and “abundant” reserves, including adjustments to liquidity requirements and internal liquidity expectations, measures to reduce stigma around the discount window, standing repo operations and daylight overdrafts, more active open market operations around quarter-ends and key fiscal dates, steps to improve dealer intermediation capacity, and making non-reserve liquid assets more attractive; he did not advocate any specific measure. As indicative sizing benchmarks, he cited balance-sheet levels around 15 percent to 18 percent of GDP as potentially consistent with post-crisis liquidity needs, and suggested this could loosely correspond to USD 1 trillion to USD 2 trillion of reduction, while warning that runoff should proceed slowly and primarily through maturities rather than sales that would lock in losses. He also noted that balance-sheet reduction would tend to be contractionary through both money/liquidity and portfolio-balance channels, and could therefore imply a lower federal funds rate path relative to baseline projections if reductions resumed away from the effective lower bound. Implementing preparatory changes could take well over a year once a decision is taken, potentially several years, with the pace of any subsequent balance-sheet reduction guided by market-absorption capacity.
Federal Reserve Board 2026-03-26
Federal Reserve Board governor outlines options to shrink the Fed’s balance sheet and sketches USD 1 trillion to USD 2 trillion potential reduction
Federal Reserve Board Governor Stephen I. Miran advocated reducing the Federal Reserve’s balance sheet without reverting to a scarce-reserves framework. He highlighted benefits like reducing market distortions and better separating monetary from fiscal policy, suggesting a reduction of USD 1 trillion to USD 2 trillion. Miran noted that balance-sheet reduction could be contractionary and affect the federal funds rate path, with implementation potentially taking several years.