The optimal size for central bank balance sheets

Charles Goodhart examines role of monetary and fiscal agents

US savings bonds

The US Federal Reserve Board started to reduce the size of its balance sheet this month by not reinvesting its inward cashflows from interest payments and maturing principal in government and agency bonds. Other major developed world central banks, such as the European Central Bank (ECB) and the Bank of England (BoE), may follow suit later.

The sequencing of monetary policy normalisation – ie, whether, and if so how far, interest rate increases should precede running down the balance sheet –

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