Federal Reserve Governor Milan talks about reducing the balance sheet: leaving space for crises but should proceed gradually.

Federal Reserve governor Stephen Milan stated that the central bank should reduce the size of its balance sheet, but this should not be a reason for policymakers to refuse to take large-scale asset purchase measures during an economic crisis. Milan pointed out that shrinking the Fed's balance sheet would reduce its impact in the financial markets, while preserving policy options for decision makers in future crises. He said in a podcast on Monday, "Expanding the balance sheet is a reasonable measure when interest rates hit the zero lower bound and financial crises continue to spread. However, policymakers should be proactive and leave enough policy space for such operations." After US President Trump announced the nomination of Kevin Wash to succeed Jerome Powell as the Federal Reserve Chairman whose term ends in May, investors and analysts are closely watching statements from Fed officials regarding the role of the balance sheet. Wash has been advocating major reforms at the Fed, including a significant reduction in the balance sheet size. In 2011, the Fed launched the second round of bond purchase program to boost the crisis-hit US economy, shortly after which Wash resigned from his position as Fed governor. While Milan supports the gradual reduction of the balance sheet, he also emphasized that this goal cannot be achieved overnight. Milan said, "To achieve this goal, we still need to overcome many obstacles in the regulatory process. Shrinking the balance sheet will be a lengthy process, and we cannot start the reduction plan tomorrow."