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The question arises as to why the Fed will try to reduce its balance?
The very act, threatening future economic development and by itself, can have a destructive impact on the economy, which eventually leads to new stimulus measures, recession and a new balance.
Some experts argue that with its current record balance, the Fed will have difficulty reacting to future shrinking of the economy in the direction of its monetary policy. Changing the latter policy itself may, however, jeopardize the stability of the economy.
Overall, it can be said that the option of maintaining a neutral balance-sheet policy may be the better option for the Fed. What will happen, however, is yet to be seen.
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