Federal Reserve Governor Waller supports balance sheet reduction and asset structure adjustment

Fed governor Paul Waller said the reduction in the size of the balance sheet should continue, including by adjusting the asset structure to increase the proportion of short-term assets, but may not need to be excessive. "I think it is likely that we will continue to allow maturing and prepayment securities to naturally exit the balance sheet for some time to come, thereby reducing reserve balances," Waller said in a speech prepared for the Dallas Fed event on Thursday. Throughout his balance sheet-focused speech, Waller argued for a reduction in balance sheets, but by less than some Fed watchers and economists have recommended. He argued that bank reserves are still at "adequate" levels (above the "adequacy" standard set by the Fed), and the ideal size should remain at about $2.70 trillion. Adding the Fed's holdings of currency in circulation and the Treasury's general account balance would bring the total balance sheet to $5.80 trillion, compared with its current size of $6.70 trillion.