The Federal Reserve is continuing to examine its program to reduce its balance sheet and likely will have to make another tweak at the December meeting to keep it running smoothly.
In a process begun in October 2017, the bank is decreasing the size of its bond portfolio, which grew to more than $4.5 trillion as part of an effort to drive down mortgage rates and lift economic growth.
The Fed is doing that by allowing $50 billion in proceeds from the portfolio to run off each month, while reinvesting the rest.
A recent survey the bank did of financial officers indicated that banks are comfortable with a smaller balance sheet than the $4 trillion one in place now, as well as one larger than the $800 billion or so level in place before the financial crisis and the Fed’s stimulus program.
Minutes from the November Federal Open Market Committee meeting detailed a discussion over the program.
In recent months, the benchmark fed funds rate has drifted in line with the interest on excess reserves, which the Fed uses as a guidepost for the funds level.
Fed Chairman Jerome Powell said the committee may have to approve a 20 basis point hike in the IOER rate to try to hold back the funds rate.
Fed officials said the rise in the funds rate to the top level of its range was a reaction to increased Treasury supply and, in turn, rising yields on government debt.