Morgan Stanley Explains Why Shrinking The Fed's Balance Sheet "Doesn't Have To Be Symmetric... At All"

by Seth Carpenter, chief economist at Morgan Stanley

Over the years, I have had countless conversations about the Federal Reserve's balance sheet. The common view is that a larger balance sheet is easier policy, and a smaller balance sheet is tighter policy. The intuition is understandable. Quantitative easing lowered long-term rates and eased financial conditions. But reversing things does not have to be symmetric … at all.