The Federal Reserve should stop shrinking its balance sheet when it gets down to a level somewhere higher than $2.9 trillion, said New York Fed President William Dudley on Friday. During comments at a Chicago Booth monetary policy forum, Dudley said he thought the Fed needed a large balance sheet to set a floor for short-term interest rates. The Fed has started to slowly shrink its balance sheet from $4.5 trillion but has not yet specified at what level it would stop. Dudley may not have a say in the final decision as he is set to retire later this year. But the New York Fed’s views carry a lot of weight at the central bank as they are in charge of the market implementation of central bank policy.
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