The chairman of the US Federal Reserve (Fed) Janet Yellen confirmed the commitment for reducing the huge balance sheet of the central bank, after being normalized the course of monetary policy. As a result of the flexible monetary conditions and the assets purchase programs the balance of Fed rose to a record 4.38 trillion USD. Answering the questions of the representatives of the Finance Committee of the Senate, Yellen said that the decision of the Federal Open Market Committee (FOMC) to exit the monetary policy generally requires “normalization of the size of the balance sheet”.
“I believe that we will be able to provide more guidance later in the year when complete discussions. Fully believe that once again we will confirmed our intention to reduce the size of the balance sheet over time”, said the chairman of the US central bank.
Yellen spotted that Fed should continue with monetary incentives given “considerable slack” in the labor market and the fact that inflation is still below the target bank. On Wednesday she said that the overall stock prices do not deviate from their historical values. The central bankers realize that keeping interest rates low for a longer period of time can extend the search for yields and to create conditions for the formation of bubbles in various asset classes. Yellen reassured that Fed closely monitors markets.
“At this point, my overall assessment is that the threats to financial stability are more moderate, but not high”, said the head of Fed. “Although the estimates of some assets may be high, and in some are fuzzy overall ratios for asset prices and other measures do not deviate from historical values. In this sense I do not see troubling signs”, continued she.
Janet Yellen said that under certain conditions during the financial crisis would extend access to investment firms and other financial institutions to the discount window of the Fed.
“It depends on the nature of the circumstances”, she said. “The large-scale cooperation scheme in the presence of systemic risk is possible but it would be something that should be considered very carefully”.
Surrender of funds of investment firms may be possible if there is a serious financial disruption and we are in a situation of systemic risk, similar to that seen during the financial crisis, when there was widespread panic.