Former Fed third-in-command pours cold water: Balance sheet reduction cannot buy room for significant interest rate cuts.

According to Odaily Planet Daily, former New York Fed President Bill Dudley wrote that the Fed's quantitative easing (QT) has reached its target and is about to stop. Further significant QT would be operationally difficult and risky, with minimal returns. Further QT would not create conditions for a substantial reduction in short-term interest rates and would have little impact on the tightness or looseness of monetary policy. The Fed's balance sheet has decreased from a peak of $8.97 trillion in April 2022 to $6.56 trillion. This is because the Fed previously purchased a large amount of Treasury bonds and agency mortgage-backed securities to support the economy during the COVID-19 pandemic, and has now sold off a significant portion of these. This move has made the supply and demand of reserves more balanced. (Jinshi)