[Former New York Fed President Dudley: Further Balance Sheet Reduction Unlikely to Create Room for Rate Cuts]
Former New York Fed President Dudley stated that the Federal Reserve's balance sheet reduction has reached its target and is about to stop. Further significant reduction operations are challenging, risky, and yield limited benefits, making it unlikely to create conditions for substantial short-term rate cuts, with little impact on the tightness of monetary policy. Currently, the Federal Reserve's balance sheet size has decreased from its peak of $8.97 trillion in April 2022 to $6.56 trillion. Previously, in response to the COVID-19 pandemic, the Fed purchased large amounts of U.S. Treasury bonds and agency mortgage-backed securities, most of which have now been sold off, bringing the supply and demand for reserves closer to balance.