Washington: The United States Treasury has indicated that the Federal Reserve is unlikely to rush into major changes to the size of its balance sheet, signaling a careful and gradual approach as the central bank weighs its next steps. Treasury Secretary Scott Bessent said the Fed would take its time in making any significant moves, stressing that balance sheet decisions are complex and require patience rather than abrupt action.
Speaking in a televised interview, Bessent explained that even as debates continue in Washington over the future direction of US monetary policy, the Federal Reserve is expected to act deliberately. According to him, any adjustments to the balance sheet whether slowing, pausing or altering the pace of reductions would unfold over an extended period and not through sudden shifts that could unsettle financial markets.
The Federal Reserve’s balance sheet expanded sharply during the COVID-19 pandemic as the central bank bought massive amounts of US Treasury bonds and mortgage-backed securities to stabilize the economy. Since then, it has been gradually reducing those holdings through a process known as quantitative tightening, allowing assets to mature without reinvestment. Although the balance sheet has already shrunk from its peak, it remains historically large.
Bessent noted that the Fed continues to operate under what is known as an “ample reserves” framework, which aims to ensure that banks have sufficient liquidity for markets to function smoothly. Under this system, the central bank may ultimately decide to maintain a larger balance sheet than it did before the pandemic, reflecting the evolving needs of the financial system.
He also addressed questions surrounding future leadership at the Federal Reserve, particularly in light of discussions about potential changes at the top. While some policymakers have previously argued for a significantly smaller balance sheet, Bessent emphasized that whoever leads the Fed would still need to respect the institution’s independence and rely on economic data rather than ideology when shaping policy.
Market analysts say the Treasury secretary’s remarks are likely to reassure investors who fear that aggressive balance sheet moves could disrupt bond markets or tighten financial conditions too quickly. By signaling a measured approach, the administration appears to be reinforcing expectations that the Fed will prioritise stability and predictability as it navigates inflation, growth concerns and long-term liquidity needs.
Overall, the message from the Treasury is clear: the Federal Reserve’s balance sheet strategy will remain cautious, data-driven and gradual, reflecting the scale of its past interventions and the risks of moving too fast in an uncertain global economic environment.