NEW YORK: The US central bank’s decision to begin slowing the pace of its balance-sheet unwind gives policymakers more time to evaluate changes in market conditions and for liquidity to be redistributed within the banking system, according to Federal Reserve Bank of New York’s Roberto Perli.
Although the Fed’s balance sheet has shrunk by over US$1.5 trillion to US$7.4 trillion since it embarked on the balance-sheet unwind almost two years ago – a process known as quantitative tightening, or QT – the level at which the Fed considers bank reserves to be ample is still uncertain, Perli said. As a result, it makes sense to slowly approach that level.