Yellen told lawmakers that she expects the central bank to eventually end up with “a balance sheet that’s substantially smaller than at the current time.”
“In addition, we would like our balance sheet to again be primarily Treasury securities,” she said. Besides Treasuries, the Fed portfolio also contains mortgage-backed debt and agency securities issued by Fannie Mae and Freddie Mac.
There’s a limit to how far the balance sheet can be reduced, however. At a minimum, it needs to be big enough to cover the roughly $1.5 trillion in currency now in circulation, which is increasing every year.
This article was provided by Bloomberg News.