At the latest Federal Open Market Committee (FOMC) meeting, Governor Christopher J. Waller supported maintaining the federal funds target range without change while continuing the current pace of decline in securities holdings.
The reduction of the Federal Reserve’s balance sheet is crucial for normalizing monetary policy and reducing excess reserves in the banking system. Governor Waller stated that slowing or stopping the redemption of securities holdings will be appropriate as the system approaches an ample level of reserves. However, he believes that the current reserve balance of over $3 trillion indicates an abundant level, and there is no evidence from money market indicators suggesting the banking system is nearing an ample level of reserves.
In June 2024, the Committee slowed the pace of redemptions to ensure a smooth transition to the appropriate level of securities holdings required for efficient and effective monetary policy implementation. Governor Waller believes this pace remains correct. If unexpected disturbances in reserve demand arise during balance sheet normalization, the Federal Reserve has various tools to address such developments. Instead of altering the current pace of balance sheet reduction, the Federal Reserve should rely on these tools and develop a contingency plan to respond to short-term strains if necessary. Even with the decision to slow the pace of runoff, a plan is still required in case a disturbance occurs in the future.
— news from Federal Reserve