Federal Reserve Bank of Dallas President Robert Kaplan said the central bank should roll off both mortgage-backed securities and Treasury holdings when it begins to let its balance sheet shrink.
“Each is a different market, the sizes and daily market volumes are different in each” and “I would be advocating that we allow both of those to run off,” Kaplan said, speaking with reporters after an event in Chicago.
“We just have to tailor our plan to each of those types of securities,” he said, adding: “Our plan should be to address both of those types of securities, and have an announced plan for how we’ll allow each of those to run off.”
“We’re approaching a period where we’ll have made some further progress and we’ll be able to make an announcement on our plans for the balance sheet,” Kaplan said Thursday.
Asked whether he’s concerned about the possibility of a market dislocation in response to the Fed’s strategy for the balance sheet, Kaplan said “it’s very important that we make a clear announcement, when we do” and that “it’s very critical that our plan for the balance sheet is patient and gradual, and try to minimize disruptions.”