Former Fed "number three" pours cold water: balance sheet reduction cannot exchange for significant rate cut space.

Odaily News Former New York Fed Chairman Bill Dudley wrote that the Fed's balance sheet reduction (QT) has reached its target and will soon stop, with further significant reductions being operationally difficult and fraught with risks, yielding minimal benefits. Further balance sheet reduction does not create conditions for a significant drop in short-term interest rates and has little impact on the tightness of monetary policy. The Fed's balance sheet size has decreased from a peak of $8.97 trillion on April 2022 to $6.56 trillion. This is because the Fed had previously purchased a large amount of U.S. Treasuries and agency mortgage-backed securities to support the economy during the COVID-19 pandemic, and has now sold off a substantial portion of them. This move has led to a more balanced supply and demand for reserves. (Jin10)