This post was originally published on this site
The president of the Kansas City Federal Reserve said on Tuesday the central bank should speedily reduce its enormous $8.5 trillion pile of bond holdings to help curb the highest U.S. inflation in almost 40 years and discourage undue risk-taking.
In a virtual speech, Esther George said the Fed’s effort to reduce inflation would be more effective if the bank drew down its holdings of long-term bonds even as it gradually raised short-term interest rates.
She said the bank should reduce its balance sheet at a faster pace than it did during a similar pivotal moment almost a decade ago as the U.S. was recovering from another sharp recession.
George warned that long-term interest rates would remain higher than they should be if the Fed trimmed its balance sheet at a slower pace.
