Philadelphia Federal Reserve Bank president Charles Plosser warned Monday that the Fed would go down “a dangerous road” if it were to indefinitely maintain a large balance sheet and use it as an alternative or parallel monetary policy tool.
In a speech prepared for delivery to a Bank of France conference in Paris, Plosser said the Fed should shrink its roughly $3 trillion balance sheet — which it built up in the course of buying assets to push down long-term interest rates after it exhausted its ability to cut the federal funds rate — and return entirely to pegging the funds rate as its primary means of operating monetary policy as soon as possible.
