As she heads toward retirement at the end of the month, Federal Reserve Bank of Cleveland President Loretta Mester still believes the central bank needs to...
- As she heads toward retirement at the end of the month, Federal Reserve Bank of Cleveland President Loretta Mester still believes the central bank needs to remain open to active sales of mortgage bonds as part of its ongoing efforts to reduce the size of its balance sheet .
The Fed expressly aims for an all-Treasury balance sheet but if current trends persist it may be impossible to get there without turning to active sales. But in two episodes of quantitative tightening, or QT, the Fed has never actively sold bonds, and it’s unclear how markets might react.Mester’s ongoing openness to mortgage bond sales comes as she is set to retire at the end of the month after a career at the Fed, with the last decade helming the Cleveland Fed.
The rise of market experience at regional banks could in the view of some Fed watchers provide an unusual counterweight to the New York Fed, which acts as the Fed system's main market agent. Speaking to reporters at the end of May, New York Fed President John Williams was also upbeat about the shift, saying the central bank's greater involvement in markets by way of balance sheet policies changes what leaders need to know. "Getting kind of a really good understanding of not only economic conditions but conditions in financial markets is really important."
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