Reducing the Fed’s Balance Sheet With Fed Board Governor Stephen Miran

Federal Reserve Governor Steve Miran details strategies for reducing the Federal Reserve’s $6.7 trillion balance sheet, proposing regulatory reforms—such as central clearing of treasury repos and adjustments to GSIB surcharges—to facilitate a potential $1 to $2 trillion reduction while maintaining ample reserves. Beyond balance sheet mechanics, the discussion addresses the economic impact of positive supply shocks, specifically noting that AI and recent deregulation efforts exert downward pressure on inflation and upward pressure on the neutral rate of interest. While acknowledging the volatility introduced by geopolitical tensions like the Iran-oil shock, the analysis maintains that monetary policy should look through such one-time price level adjustments, focusing instead on long-term trends in labor market cooling and fiscal deficit trajectories.