Brookings Proposes Smaller Fed Balance Sheet
A new Brookings Institution paper suggests the Federal Reserve could reduce its balance sheet to 4.5 trillion dollars. The plan involves overhauling rate controls and liquidity tools to lower overall banking cash reserves.
The Federal Reserve could shrink its balance sheet from $6.8 trillion to $4.5 trillion by overhauling its rate toolkit, according to a Brookings Institution paper released on Tuesday. The proposed contraction would reduce financial system reserves from $3 trillion down to $1 trillion. The changes would lower the central bank's footprint relative to GDP to its smallest level since 2008 while cutting interest paid to banks by two-thirds, author Chris Hughes wrote.
