Fed’s Mester says plenty of room left to run on balance sheet drawdown

NEW YORK (Reuters) – Federal Reserve Bank of Cleveland President Loretta Mester said on Friday the central bank still has plenty of space to cut the size of its holdings as a complement to its tighter short-term rate stance.

“There’s still more runway there” to lower the size of the Fed’s holdings and this process could play out over the next year and a half to two years, Mester said at an event in New York held by the Shadow Open Market Committee.

Mester also said what happens with the balance sheet drawdown is separate from interest rate policy choices, saying “we can have the balance sheet reduction continue independently” of federal funds rate moves.