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Issues and Challenges of the Normalisation of Fed's Balance Sheet of US

Michel Dupuy * Université de Bordeaux, Larefi. Contact : michel.dupuy@u-bordeaux.fr.
Sylvie LACUEILLE ** Kedge Business School. Contact : sylvie.lacueille@kedgebs.com.


The normalisation of US monetary policy undertook in December 2015 with the raise in the Federal funds rates is now entering a new phase characterized by the reduction of the Fed's enormous balance sheet. The Fed is opting for a progressive and predictable reduction of its balance sheet, based by halting reinvest proceeds of maturity bonds. Given the unprecedented nature of a such operation of central bank's reduction of its balance sheet, it is important to analyze in depth the issues related to the Fed's monetary turning. A poorly planned Fed's balance sheet could destabilise all financial markets both in the US and in the rest of world. In order to give a more complete overview of the key issues and challenges of the normalisation of Fed's balance sheet, we have adopted an approach based on an outlook of the US monetary policy. After examining the Fed's balance sheet management at the beginning of the normalisation of US monetary policy, then showing the need to reduce the size of the balance sheet, we are dealing with the central question of determination of the optimal size of the Fed's balance sheet level.


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