Reducing the Fed’s balance sheet is a daunting task, say central bankers in Jackson Hole

Central bankers heard a pessimistic assessment of the benefits of quantitative easing and their ability to smoothly reduce the Fed’s balance sheet in the second academic paper presented Saturday at their annual conference in Jackson Hole.

Later in the day, they will receive an update from the heads of the French, Swiss and South Korean central banks as well as Isabel Schnabel, member of the European Central Bank’s executive board.

“Central bank balance sheet reduction is unlikely to be an entirely benign process,” wrote New York University professor Viral Acharya and his co-authors. “Our work suggests careful re-examination of the merits of quantitative easing.”

Quantitative easing, or QE, refers to the massive bond-buying campaigns launched by the Fed during the 2008 financial crisis and unleashed again as the pandemic spread in 2020.

The paper, whose co-authors include Raghuram Rajan of the University of Chicago, was a word of warning to U.S. policymakers, who have begun shrinking the balance sheet even as they raise interest rates.

Economists, Fed officials and central bankers from around the world are in Jackson Hole, Wyoming, this week for an annual conference hosted by the Kansas City Fed. They meet as policymakers face unbridled pressures on prices, which in the United States have reached the highest levels in four decades.

This year’s conference is being held in person for the first time since 2019.

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