Kansas City Fed President Esther George said Fed’s policy normalization approach could be more aggressive on balance sheet reduction, rather than faster rate hikes.
“What we do on the balance sheet is likely to affect the path of policy rates and vice versa,” George said during an event “For example, if we took more aggressive action on lowering, pulling down that balance sheet, it might allow for fewer interest rate increases.”
He added that raising short-term interest rate while maintaining a large balance sheet “could flatten the yield curve”, and lead to “reach-for-yield behavior from long-duration investors.”
“All in all, it could be appropriate to move earlier on the balance sheet relative to the last tightening cycle,” she said.
