US Fed policymaker sees trims in balance sheet as soon as May

A senior US Federal Reserve official said Saturday the central bank should begin trimming its balance sheet as early as next month, in what would be a major step in its push for monetary tightening.

In a speech at Princeton University, John Williams, a Fed policymaker who is president of the Federal Reserve Bank of New York, argued that tightening is urgent in the face of "acute" risks posed by soaring inflation -- risks exacerbated by the Ukraine war, the coronavirus pandemic and ongoing labor and supply shortages.

 "I expect that this process of reducing the size of the balance sheet can begin as soon as the May FOMC meeting," he said, referring to the Federal Open Market Committee, the Fed's monetary policymaking body, due to meet May 3-4.

 As head of the Fed's New York branch, Williams serves as vice chairman of the FOMC and is one of its eight permanent members.

 In the early days of Covid-19, with the nation's economy reeling, the Fed launched a program of purchasing bonds and mortgage-backed securities to stabilize financial markets.

 In the process, it more than doubled the size of its balance sheet, which shot up to $8.9 trillion from $4.1 trillion in February 2020.

 Last month the Fed stopped making such purchases, marking a first step back toward normal practices.

 To now trim its balance sheet, the Fed would principally allow its portfolio to steadily decline, not fully replacing those securities reaching term.

 Two weeks ago, the Fed's policy-making committee moved to raise interest rates by a quarter point, placing them in a 0.25 percent to 0.50 percent range.

 Many economists see the decision to trim the Fed's balance sheet as being just as important a monetary move as the raising of rates.

 Federal Reserve Chair Jerome Powell had said during a March 16 news conference that balance sheet reduction could be decided at an upcoming FOMC meeting, but he was not specific about timing.