Macro Economy

Brookings Institution paper charts path toward smaller Fed balance sheet

• What: A Brookings Institution paper suggests reducing the Federal Reserve's balance sheet size.
• Why: The paper argues that a smaller balance sheet could help the Fed achieve its dual mandate of price stability and maximum employment.
• Signal: The proposal is seen as a signal that the Fed may be considering a more hawkish monetary policy stance.
• Target: The paper proposes a target balance sheet size of around **$2 trillion**.
• Risk: Reducing the balance sheet too quickly could pose a risk to financial stability.