Still, there are obvious financial stability benefits to keeping the balance sheet large, he says. The debate, Cochrane adds, should center on whether to hold on to both long- and short-term bonds, and whether to dump mortgage bonds and retain only Treasuries.
One thing is clear: the Fed has not shut the door on keeping a bigger balance sheet for longer, or using it as a policy tool on top of its usual lever of setting short-term borrowing costs.